Transcript of Press Conference with IMF Mission Chief of Egypt

IMF News, April 1, 2024

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IMF Executive Board completed the first and second reviews of the Extended Fund Facility for Egypt and approved an augmentation of the original program by about $5 billion to $8 billion in total.
The decision allows the authorities to immediately draw the equivalent of about $820 million.
Next (third) review: expected to be completed and considered by the IMF Executive Board by end June 2024.
- The third review is expected to unlock $820 million (subject to completion of review conditions).
Reviews four through eight: scheduled every six months thereafter, with each disbursement currently programmed to be about $1.3 billion.
The last review under the program is scheduled for the fall of 2026.
Staff note: tranche sizing considered timing and size of balance of payments needs and availability of other financing.

Core elements of the authorities’ stabilization plan:
- Liberalized foreign exchange system in the context of a flexible exchange rate regime.
- Significant tightening of both fiscal and monetary policy to support the adjustment in the exchange rate.
- Reduction in public investment, broadly defined.
- Implementation of reforms to allow the private sector to become the engine of growth.
Authorities committed to use a large part of new financing to:
- Improve the level of reserves.
- Fast track clearance of foreign currency backlogs and arrears.
- Reduce government debt upfront.
Rationale: saving proceeds to bolster buffers and reduce vulnerabilities is described as "prudent and the right choice."

Real GDP growth:
- Forecast for current fiscal year (ends end-June): lowered to 3 percent.
- Projected rebound for fiscal year 2024-2025: upgraded to just under 4.5 percent.
Inflation:
- Inflation is expected to remain high in the very near term.
- Forecast for next fiscal year: "on average about 25.5 percent and 15 and a quarter on for the end of the period at the end of next fiscal year."
- Near-term inflation uncertainty noted due to possible pass-through from exchange rate unification and recent appreciation trends in the official currency.
Detailed debt and other projections: to be published in the IMF staff report in the coming days (per the transcript).

Fiscal stance:
- Fiscal consolidation envisioned as revenue-based, broadening the revenue base to put debt on a downward path.
- Resources to be reallocated to expand social safety nets and priority expenditure (education and health).
Energy subsidies:
- IMF advice: replace untargeted fuel subsidies with targeted social spending; use fuel price adjustment mechanism proposed by authorities.
Use of Ras El-Hekma proceeds:
- Authorities committed to save a significant portion in gross international reserves and to use 50 percent of the local currency value of proceeds to reduce public debt.
- Ras El-Hekma cited as easing near-term external financing pressures but prudent use remains critical.

Central Bank of Egypt (CBE) policy guidance:
- CBE resolve to focus on reducing inflation and to tighten further, if necessary, is key.
- It is "perhaps a bit early" to discuss an easing cycle; decisions should be data-driven with readiness to tighten if inflation pressures persist.
Capital controls / FX access:
- Key reform: ensure FX market functions so price of foreign exchange is market-determined and available to private sector firms and individuals.
- Program expectation: avoid return to FX rationing and restricted FX availability.

Structural priorities:
- Withdraw the state and military from economic activity as per the authority's state ownership policy.
- Ensure public sector firms are not given competitive advantage over private sector firms; create a level playing field to attract domestic and foreign private investment.
Monitoring:
- Authorities and IMF staff are developing an indicator to jointly track progress in reducing the role of the state and advancing a level playing field; details to be available in the forthcoming Staff Report.

Capital inflows:
- Recent improvement in outlook has started to attract capital inflows (including FDI); continued policy implementation is important to sustain inflows.
- Authorities urged to manage inflows carefully to maximize benefits while maintaining macroeconomic stability.
Building resilience to global shocks:
- Recommended tools: build foreign exchange reserves, reduce public debt, improve quality of public expenditure, and use targeted transfers to protect households.
RSF (Resilience and Sustainability Trust) request:
- RSF is separate from the EFF; Egypt has requested access under RSF to address climate policies.
- Discussion of RSF policies with authorities expected alongside the third review (next three months); Executive Board approval required for access.

Transcript of Press Conference with IMF Mission Chief of Egypt — April 1, 2024.