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Transcript of Press Briefing on Egypt
March 13, 2025
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IMF Communications Department
MEDIA RELATIONS
PRESS OFFICER: Angham Al Shami
Phone: +1 202 623-7100Email: MEDIA@IMF.org
March 13, 2025
PRESS OFFICER: Angham Al Shami
Phone: +1 202 623-7100Email: MEDIA@IMF.org
PARTICIPANT: Ivanna Vladkova Hollar, IMF Mission Chief for Egypt
MODERATOR: Angham Al Shami, Communications Officer
Angham Al Shami, IMF: Good afternoon to those of you joining us from Egypt and the region and Ramadan Kareem. Thank you for joining today's press briefing. My name is Angham Al Shami from the IMF Communications Department. Before we start, I just wanted to flag that we do have Arabic interpretations. By clicking on the bottom of your screen, there's a globe, and you can access or make interpretations there.
I'm joined here today by Ivanna Vladkova Hollar. She's the IMF Mission Chief for Egypt and division chief at the Middle East and Central Asia Department. Ivanna will give us a brief overview, and then we will open the floor for your questions.
Today the focus will be on Egypt. 4th review of the EFF, he approval of the arrangement under the RSF, and the Article IV consultation, which is basically the outlook for Egypt. We will not be taking questions on other countries or regional issues. We have about half an hour and a lot to cover. So you know, a lot on Egypt. So let's try to focus the questions on that. And with that over to you.
Ivanna Vladkova Hollar, IMF: Thank you, thank you, Angham, and thank you all for joining us for this press briefing.
On Monday, March 10th the Executive Board of the International Monetary fund completed the 4th review of Egypt's economic reform program, supported by the EFF arrangement.
This enables the authorities to immediately draw about us 1.2 billion as a result of completing the review. In addition, the IMF Executive Board approved the authorities’ request for an arrangement under the resilience and sustainability facility, with access of about 1.3 billion. The Executive Board also concluded the 2025 Article IV Consultation with Egypt.
Since March 2024, the authorities have made considerable progress in stabilizing the economy, despite a very challenging external environment which has been marked by persistent and successive external shocks, including regional conflicts and trade disruptions in the Red Sea.
What are the bright spots? Notably economic growth has recently shown signs of recovery Inflation is gradually moderating with a particularly encouraging drop in February, as we've seen on the release of Monday's data. fiscal consolidation has progressed and has contributed to a declining debt to GDP ratio following the unification of the exchange rate in March 2024, and the introduction of a flexible exchange rate regime. Gaps with the parallel rate remain closed and backlogs of unmet import demand have been eliminated and have not reemerged.
Tourism income is an additional bright spot that has remained robust despite the ongoing regional conflicts and foreign exchange reserves are now at adequate levels, despite the significant reduction in inflows from the Suez Canal.
So those are the bright spots. What are the challenges? Progress with the implementation of the structural reform agenda under the program has been mixed with notable delays on reforms related to divestment and to leveling the playing field between public and private sector enterprises.
Therefore, a key challenge going forward is transitioning Egypt from the current stabilization phase to a more transformative phase through the acceleration of structural reforms. Deeper reforms are required to unlock Egypt's growth, potential sustainably reduce its vulnerabilities increase the economy's resilience to shocks and meet its economic and social needs and objectives.
Decisively reducing the role of the public sector in the economy is a key priority in that regard.
Another essential reform is transforming monetary and exchange rate policy through the implementation of inflation targeting in the context of a flexible exchange rate regime. It will be very important that this reform is sustained over time.
Domestic revenue mobilization will also need to continue broadening the tax base, streamlining tax incentives, enhancing compliance. These are all essential to being able to support the Government's capacity to spend sufficiently on priority development and social needs.
Implementing macroeconomically critical climate reforms is another aspect of the broader structural reform agenda and will address Egypt's adaptation needs and enhance long-term resilience and sustainable growth.
In all these aspects we look forward to continuing our constructive dialogue with the authorities, supporting them in the implementation of their economic reform program under both the EFF and now the RSF. As well as providing them with technical assistance when needed to help with the implementations of these important reforms.
So with this I will conclude my opening remarks, and we can open it up for your questions. Thank you.
Angham Al Shami, IMF: Thank you very much, Ivanna. We will now open the floor for questions, and if you have a question, please turn on your camera if you can, and raise your hand or type the question in the chat box. So I will go over the first set of questions And see and put their hands up. Maybe we can go to.
Angham Al Shami, IMF: Okay. Go ahead, Sara.
Okay. I'm Sara from Al Ahram. IMF Press release mentions that the results of exchange rate flexibility need to be maintained in the future. And you also mentioned that what does it mean, and what is there any indication that we, as a flexibility of the exchange rate, is not good? What should we do about that?
Angham Al Shami, IMF: Thank you, Sara. Maybe we'll take a couple of more questions. Let's go to.
Questioner: thank you for taking my question. I have a question on the key answer. the press release included last night about the debt and inflation. I want to ask about the key drivers behind the downward path for the debt, and as well as for the inflation, especially that the inflation rate for February indicates a significant drop. Thank you. Thank you so much.
Angham Al-Shami, IMF: Okay. Maybe we'll take the final question for this round. Mohammad Syed.
Questioner: Yes. Hello everyone. I have a question about the 1.2 funds which has been approved by the council yesterday. I'd like to ask when it will be initiated into central Bank of Egypt. Will it be in current March or established? And the other reserve fund, which is valued at 1.3 billion. When will be received by Egypt? The first tranche and how much would it be?
Angham Al-Shami, IMF: Okay. Maybe we'll l take this set of question and then come back with the other set of Questions.
Ivanna Vladkova Hollar, IMF: So thank you all. These are all very good questions on exchange rate flexibility. Yes, this was emphasized in the press release that I just mentioned in my opening remarks that it's very important to sustain this reform. And the message there is indeed that this this shift to a inflation targeting regime under a regime of exchange rate flexibility is a key reform from the initiation of the program.
And the message simply is that this reform is indeed very important to Egypt's outlook, macroeconomic outlook, and therefore very important to sustain. Now, I just wanted to step back and reiterate the objective of this reform. The objective of allowing the exchange rate to adjust is to avoid the buildup of imbalances, to avoid the rationing of foreign exchange, and to avoid large discrete devaluations, which are which are very disruptive. So in an environment in which the currency fluctuates in line with changes in demand and supply for foreign currency, we would see both upward and downward movements in the exchange rate, both appreciation and depreciation in response to outflows and inflows of foreign exchange.
And so that that is ultimately the objective of the reform. And in a sense, what is the way one observes the implementation of off this reform.
On debt and inflation, debt dynamics, as I mentioned also in in in my bright spots introduction, in the opening remarks that that has been coming down and so has inflation. The drivers are different. On the inflation, the February significant drop was largely expected in the sense that it was produced by base Effects in February of 2024. So 12 months ago, if you remember, there was a very significant rise in monthly inflation that was driven by a very large depreciation of the parallel market rate right ahead of unification that was very quickly built into prices. And so the February, the February price level reflected that significant depreciation of the parallel market exchange rate and has kind of been carried with us for the 12 months. The base effect is now dropped off in February. And we saw this this drop in inflation.
We continued to project a moderate inflation for this year. At the moment, we have a projection of about 16.6% for end June at the end of this fiscal year. And we will assess. This was pre February release. Even though as I said this was largely expected. So we will see whether we maintain this forecast for the end of the year or we think inflation might come in slightly lower.
On debt, the drivers are the continued consolidation on the fiscal side delivering on a primary balance, some debt management on the part of the Ministry of Finance and also the use of divestment proceeds for reduction of debt and financing needs. And so that combination of three drivers of debt continue to be important in securing the downward path that we have started to see on debt.
And now to the questions of the disbursement, the disbursement that I mentioned, the $1.2 billion disbursement that's associated with completing the fourth review under the EFF is available to the authorities immediately. And so, yes, it's if it hasn't been delivered already, it is definitely being delivered in March.
Once the board meeting takes place and the board approves the completion of the review, there is nothing else standing between the ability of the member to access those funds.
Now, now let's actually go to the to the RSF because it's a slightly different setup. The RSF access of 1.3 billion is for the entire arrangement, and that arrangement runs through the duration of the underlying EFF through the fall of 2026. Now that works slightly differently. Not in the exact same trenching that the EFF program is delivered, but it is disbursed in in pieces and it's linked to the implementation of reform measures.
So the current RSF arrangement for Egypt has ten reform measures (RMs), each reform measure associated with one tenth of the overall size of the disbursement. And so there is a schedule for the targeted date for implementing those RMs. Those are and. Basically, they are reviewed at the time of the reviews of the ESF and depending on the completion of the of the RMs that are due at that time, should they be completed. The disbursement happens in basically again one tenth per RM of the overall size of the of the program. Happy to follow up with there more questions on this. But that is also phase disbursement. Just to summarize. But it's based on the completion of each individual area of which there are ten.
Angham Al Shami, IMF: Thank you, Ivanna. So I see that we have a number of you that have your hands up. And as I said, we only have a limited time. So please keep your questions. You know, just keep it to 1 or 2 max. and keep them. Keep them brief. So I'll go again to Doaa because I see your name still your hands is up. I don't know if it's an old hand, but if you can quickly ask an additional question and then we'll go to the other colleagues.
Questioner: Please, Ivanna for RSF can you please elaborate more on the first review when it is scheduled. And for the Fourth review, we want to know more about the commitments, whether the government or the Egyptian side has met or hasn't met. Thank you so much.
Ivanna Vladkova Hollar, IMF: Okay, so as I mentioned, the performance under the RSF is reviewed at the time of the underlying reviews of the EFF. At the moment they are three RMs that will be reviewed within the end of this fiscal year. So. There are measures that are due in June and if they are completed, they will be reviewed with the subsequent review of the of the EFF.
Sorry, I should have written your last question. What was it? The fourth review commitments. Okay. So the completion of the review signifies that the prerequisite for meeting the review have been met. The fact that the IMF board has met and concluded the review means that the prerequisite for the review have been met. So in that respect, the board considers the quantitative commitments of the authorities and also the performance under the structural benchmarks. Under the quantitative performance criteria, the authorities met all but two of the quantitative performance criteria that are relevant for the review. But we have a process of requesting waivers that allows the board to allow the review to move forward if appropriate corrective measures have been taken and that that was the case.
On the structural reform agenda, where there has been some delay in implementing some of the commitments. The authorities have made significant progress and allowed the board to consider the review. Some of the areas in which the structural reform agenda has moved forward has been on the on the tax side. And I assume there be some questions on that when we can discuss that. There is a structural benchmark under the program for and November to submit to Parliament a tax package. And that has been done has paving the way for completing the review.
And a number of other structural benchmarks were delivered, including measures to strengthen the independence of the Egyptian Competition Authority, which is an important aspect of improving the competition framework within Egypt as well as reforms that kickstart an assessment of the governance of state owned banks to ensure that those large banks that operate within Egypt's financial sector benefit from best practices in their in their in their governance. So the bottom line on this is the review has been completed because there has been sufficient basis for assessing the program is moving forward in a way that gives us comfort that it could reach its objectives at the end of, at the end of the program. So maybe. Yeah. Take some other questions.
Angham Al Shami, IMF: Yeah. We'll take a few other questions. So maybe we'll take a few. We'll start with Katie then. Yes. Then Giovanni.
Questioner: Hi. Good morning. The executive board has said that ensuring debt sustainability necessitates adopting a medium-term debt management strategy. I wonder if you can give any more insight as to where the authorities currently stand in terms of adopting that strategy. I know there was reports that the Finance Ministry is planning to release a new public debt policy document at the end of March, so I'd be interested to know if the fund has seen a copy of that document, if it had had an advisory role, perhaps, in drafting that document, and whether the fund feels that that plan does go far enough to addressing Egypt's high levels of debt.
Angham Al Shami, IMF: Thank you. Thank you. Katy will go. If you don't mind, please. We'll go with Yassin and Giovanni. Yassin, please.
Questioner: Hi. Angham, this is Yassin from CNBC Arabia. Steve. In the statement, you spoke about energy prices and recent cost recovery levels. Have you discussed with the Egyptian authorities when they can resume reducing energy subsidies?
Angham Al-Shami, IMF: Thank you. I think we have seen. And then Giovanni.
Questioner: Hi everyone, this is Giovanni from Red read Intelligence I, I had a question on the on the waivers and on the criteria that were not met. Can you give us a bit more detail in terms of what exactly which created which exactly which criteria were not met, and provide a bit more color on that? Thank you.
Angham Al Shami, IMF: Thank you everyone. So we'll take this, this group and then we'll, we'll go to the next set of questions.
Ivanna Vladkova Hollar, IMF: Sure. So on debt management strategy, we, we have indeed engaged with the authorities on the importance of importance of debt management. As I mentioned earlier, there are three elements that are critical for making sure that debt continues to move downward and ensure appropriate levels that are consistent with debt sustainability. That is moving forward with the with the fiscal consolidation and maintaining a sound fiscal policy.
It is and implementing a debt management strategy, and it is ensuring that the commitment to use some of the resources from the divestment proceeds are used for debt reduction, so debt management is an important component of that trio of supporting measures.
We do not we are not we do not provide debt management advice per se. We're not the management strategy advisors, but we are in touch with the authorities on how they move forward on their plans for incorporating the term debt management strategy into their into their plans. So we do not co-write the strategy with them.
On the issue of cost recovery levels of fuel products and energy subsidies. A couple of things I want to say there. The objective of the reform, again, one is, is subsidies keep prices low for all consumers. And they are not they are not a good use of scarce public resources. We we've talked about the fact that the public sector does have constraints into how it spends the resources, the tax resources, that it collects.
And we obviously advocate for spending those set of resources in a in the most efficient way. Subsidies are not an efficient form of support. They're not well targeted to those that need the most support. And therefore, the recommendation is to move away from untargeted support to more targeted support, again, because it's able to deliver the resources to those that need it the most. The other point I'd like to make is that energy prices have that that reflect the cost of production, will support investment in energy and therefore that would help increase supply of energy. Given the increasing energy demand in Egypt that we've seen and allow Egypt to avoid electricity shortages.
Now, the commitment on subsidies has been a public commitment since, I want to say, June, July, certainly since the last review, where the authorities have committed to bring Prices of fuel products to cost recovery levels by end December of 2025.
That commitment has not changed and remains the prevailing commitment on bringing retail fuel prices to cost recovery levels.
And then on the to the two quantitative performance criteria the for which waivers were requested. One of them was reducing the stock of central bank credit to public authorities.
That is a measure that reduces the stock of legacy monetary financing to the public sector under the program. Originally, that stock was capped at its existing level. In order to basically prevent a reemergence of this. But the authorities’ ambition is to reduce it over the course of the program and through 2027.
And they have well embedded in the program is actually a decline in that stock over time. And so the end December target for that stock was missed. But the waiver was granted on the basis that the authorities implemented corrective measures quickly and reduced that stock back to its target before the Board meeting took place.
The other the other quantitative performance criteria that was missed was the end December targets for the primary balance. Part of that was largely expected. The definition of the primary balance under the program includes divestment proceeds. And given that, as I have mentioned, that part of the program had not moved forward sufficiently, the divestment proceeds were not available to the Ministry of Finance at the time at in December. In addition, some of the revenues, the non-tax revenues underperformed our current projection, even though tax revenues have actually performed very strongly. And on the basis of corrective actions, namely allocating additional FDI proceeds to the reduction in debt and making sure that there are some expenditure categories that could be held back to meet the end-year target, the board approved the waiver for the missed primary balance target.
Angham Al Shami, IMF: Okay. We'll take the final set of questions and we'll start with Ahmed. But we can't hear you. You're on mute.
Questioner: Hello, everyone. I am Ahmed Yacoub managing editor of Al-youm Egyptian newspaper. My question is about the expected inflation rate and GDP growth rate in the next or the next fiscal year 2025, 2026, and exchange rate, the expected exchange rate and upcoming fiscal year. And my second question is about the next trench, which is which is the fifth tranche of the IMF deal with Egypt. The expected date for the review of the fifth review of the program and Expected that to disperse the trench. Thank you.
Angham Al Shami, IMF: Thank you. Might I have a couple of questions in the chat? I will just read them to you. How fast you see current account deficit falling. And how active are you in monitoring the role of state banks in the affects market?
And the final question, because I don't see any other questions from an activity on what safeguards, as the IMF recommend to protect vulnerable groups from subsidy and subsidy cuts?
Ivanna Vladkova Hollar, IMF: Okay. So very quickly then, our projections for growth and inflation for the next fiscal year, fiscal year 2025, 2026, currently are for growth of 4.1 and inflation at the end of the period of 13.4. Having said that. As I mentioned, We've seen an inflow of current data, particularly on inflation and on indicators suggesting that the private non-oil sector is entering a tentative expansion after a very long period of contraction. So we will we assess those numbers for the next world economic outlook and for the next review.
On the current account, We still expect the current account to be fairly elevated this year, but then for next year, for the next fiscal year, 2025, 2026, to come down to about 3.5% of GDP deficit. Part of the contributing factors to the elevated current account this year are not just the disruptions in the Suez Canal, but also the rather difficult situation in the energy sector, which is contributing to a higher trade deficit.
On the timing of the fifth review, the expectation for the fifth review, according to the current disbursement schedule, is for it to take place before end June. And should the board indeed consider the first review before end June. As I mentioned, once the board considers the review, the disbursement is immediately available.
And then the question on safeguards for the vulnerable in terms of subsidy cuts, Egypt has a well targeted cash transfer program. And that is always the vehicle through which, as I mentioned, and efficient support to those that need the assistance the most can be targeted. And the authorities have committed under the EFF to an extension of the resources allocated to the Takaful and Karama programs and have indeed announced a few augmentations.
Here, I will mention that the completion of the Household Income Expenditure Survey that was delivered as part of a structural benchmark under the program provides the basis, the analytical basis for. For making sure that the expansion of the program, be it through an increase in, in the size of the payments or the increase in the coverage of the program, adequately meets the social protection needs of the population. So that is the main vehicle through which we expect assistance to be provided on a targeted basis. Thank you very much.
Angham Al Shami, IMF: Thank you. I think this concludes our press conference for today.
Thank you all for joining us this morning. And if you have any questions or any additional questions, please feel to reach. Reach out to me directly or you can email media@imf.org
And just a reminder that the content of this press conference is going to be under embargo until 11 a.m. Washington, DC time. So I believe it's around 5 p.m. it's 5 p.m. in Cairo. Any last words Ivanna before we end.
Ivanna Vladkova Hollar, IMF: just thank you for your questions. And I look forward to doing this again at the time of the next review.
Angham Al Shami, IMF: Thank you all and hope to see you soon. Take care.
