The IMF approved an $820 million disbursement to Egypt following the third review of the Extended Financing Facility
RIYADH: The International Monetary Fund has approved a disbursement of about $820 million to Egypt following the completion of the third review of the country's extended arrangement.
The IMF approved an expanded $8 billion program to support the African country in March after the Gaza crisis took a toll on its economy. This has slowed tourism and cut Suez Canal revenues in half due to Yemeni attacks on Red Sea shipping.
The deal was made under the Extended Financing Facility, a program designed to help countries with serious medium-term balance of payments problems as a result of structural problems that take time to resolve. Egypt's 46-month EFF program was approved on December 16, 2022.
According to the international organization, Egypt has made significant progress in its efforts to stabilize the economy. While inflation remains high, it is gradually declining. A flexible exchange rate regime remains central to the program, the IMF said in a press release.
After the joint first and second reviews in March, there is an improvement in macroeconomic conditions in Egypt. Inflation is down, the foreign exchange deficit has been eliminated, and fiscal targets, including those related to infrastructure spending, have been met.
“These improvements are beginning to have a positive impact on investor confidence and private sector sentiment,” the IMF added.
Maintaining a flexible exchange rate and a liberalized currency system is essential to prevent external imbalances, while a data-driven approach by the central bank is necessary to further reduce inflation.
The fund said continued fiscal consolidation would help manage public debt, while efforts to strengthen domestic revenues and contain fiscal risks from the energy sector would ensure resource availability. This aid is needed for basic health and education spending, creating budget space for increased social spending to support vulnerable groups.
“Although progress has been made on some important structural reforms, more efforts are needed to implement the state ownership policy,” the press release added.
Enhancing the resilience of the financial sector, improving governance practices and increasing competition in the banking sector should be key priorities as they are essential to propel Egypt towards private sector-led growth that creates jobs and opportunities for all.
IMF Deputy Managing Director and Acting Chair Antoinette M. Saye said the reforms are yielding positive results: unifying exchange rates and tightening monetary policy, reducing speculation and curbing price growth.
Sae said: “Policy settings are expected to help maintain macroeconomic stability. A sustainable transition to a flexible exchange rate regime and a liberalized currency system, further implementation of the stance of tight monetary policy and further fiscal consolidation, combined with the proper implementation of the system of monitoring and control of public investments, should support the internal and external balance.
She added that allocating part of the financing from the Ras El Hekma deal to build reserves and reduce debt provides additional cushion against shocks.
In February, a private consortium led by ADQ, an Abu Dhabi-based sovereign wealth fund, signed an agreement with Egypt to invest $35 billion in Ras al-Hekma, a Mediterranean coastal region 350 km northwest of Cairo. This is the largest one-time foreign direct investment in Egypt's history.
Looking ahead, the IMF official said the implementation of the structural reform agenda is critical to inclusive and sustainable growth. Increasing tax revenues, improving debt management and using resources aimed at reducing debt will allow for more productive spending, including targeted social spending.
The recovery of energy prices to cost-recovery levels by December 2025 is essential for a secure energy supply and the balance of the sector. Improving the governance of state-owned banks, promoting public ownership policies, increasing fiscal transparency, and leveling the economic playing field are vital to attracting private investment.
“The risks remain significant. Regional conflicts and uncertainty over the duration of trade disruptions in the Red Sea are important sources of external risks,” said Sayeh.
She added: “Maintaining appropriate macroeconomic policies, including a flexible exchange rate regime, will help ensure economic stability. Significant progress in the structural reform program will significantly improve growth prospects. Prudent management of the recovery in capital inflows will also be important to contain potential inflationary pressures and limit the risk of future external pressures.”
