Press Release No. 05/29

Press Release: IMF Mission Concludes Discussions for the 2005 Article IV Consultation with Egypt

February 16, 2005

The following statement was issued today in Cairo by an International Monetary Fund (IMF) staff mission:

"On February 16, 2005, an IMF mission concluded its annual consultation with the Egyptian authorities taking stock of recent economic developments and discussing economic policies going forward. The discussions serve as input for the preparation of a regular report for the IMF's Executive Board.

"The consultation took place in the context of a solid economic recovery, strong external position, and improved confidence. The new cabinet that was appointed in 2004 quickly established its reform credentials by enacting a series of decisive measures, including trade and tariff reform; foreign exchange market reform; and adjustments in administered prices. The government also began modernizing budget classification; announced a comprehensive financial sector reform program; and formulated and is executing plans to privatize a large number of state-owned firms. The mission commended the government for these reform initiatives.

"The launch of the interbank market for foreign exchange in December 2004 completed the transition to a unified flexible exchange rate system. The mission discussed instruments and mechanisms that the central bank could use to ensure the continued orderly functioning of the market. In the area of monetary policy, the mission welcomed the authorities' commitment to strengthen the policy framework with the aim of quickly anchoring inflation expectations in the context of a floating exchange rate regime. Discussions also covered actions that would help lower inflation.

"The government has embarked on an ambitious program of privatization and financial sector reform. The mission encouraged the authorities to pursue these programs vigorously and to adhere to targets and timeframes set out under them.

"The ongoing efforts to modernize Egypt's budget classification and treasury cash management, improve tax administration, and reform the income tax clearly demonstrate the priority the government has assigned to fiscal policy in its reform agenda. The government is committed to reducing the budget deficit in order to lower public debt and create room for financing private sector investment. To attain the latter goals, the mission stressed the importance of focusing on the total borrowing needs of the government—rather than narrower measures of the fiscal deficit—taking into account the costs associated with the financial sector reform. The discussions also covered other priorities in the reform of Egypt's public sector institutions that would lead to increased efficiency of public spending.

"Egypt's subscription to the IMF's Special Data Dissemination Standard in January 2005 was a welcome step towards data transparency. The mission supported the authorities' intentions to improve the quality of statistics, particularly the balance of payments and indicators of inflation and economic activity. Toward this aim, the mission encouraged the authorities to move rapidly to increase coordination among data collecting agencies."