RIYADH: The International Monetary Fund has approved the disbursement of approximately $820 million to Egypt following the completion of the third review of the country's expanded arrangement.
The IMF approved an expanded $8 billion support program for the African country in March after the Gaza crisis negatively affected its economy. This has slowed tourism and cut Suez Canal revenues in half due to attacks from Yemen on shipping in the Red Sea.
The agreement was made under the Extended Fund Facility, a program designed to help countries with serious medium-term balance of payments problems resulting from structural problems that take time to resolve. Egypt's 46-month EFF agreement was approved on 16 December 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 falling. A flexible exchange rate regime remains central to the program, the IMF said in a press release.
Egypt has seen an improvement in macroeconomic conditions since the combined first and second reviews in March. Inflation is easing, foreign exchange shortages have been addressed and fiscal targets, including those related to infrastructure spending, have been met.
“These improvements are beginning to have a positive effect on investor confidence and private sector sentiment,” the IMF added.
Maintaining a flexible exchange rate and a liberalized foreign exchange system is necessary to avoid external imbalances, while a data-driven approach by the central bank is necessary to further reduce inflation.
The fund said continued fiscal consolidation will help manage public debt, while efforts to boost domestic revenues and limit fiscal risks from the energy sector will ensure resource availability. These measures are necessary for essential health and education spending and create fiscal space for increased social spending to support vulnerable groups.
“While progress has been made on some major structural reforms, more efforts are needed to implement the state ownership policy,” the press release added.
Strengthening the resilience of the financial sector, improving governance practices and increasing competition in the banking sector should be key priorities as they are essential for Egypt to lead to private sector-led growth that creates jobs and opportunities for all.
Egyptian Finance Minister Ahmed Kojak said the IMF's approval of the third review of the economic reform program is a vote of confidence in the government's program, which includes financial and economic reforms and goals.
He added that it also serves as a reassuring message that reflects the ability of the Egyptian economy to strengthen stability.
IMF Deputy Director General and Acting President Antoinette M. Sayeh said that the reforms are yielding positive results, unifying the exchange rate and tightening monetary policy, curbing speculation and moderating price growth.
Sayeh said: “The policy setting is expected to help maintain macroeconomic stability. A sustained shift towards a flexible exchange rate regime and a liberalized foreign exchange system, continued implementation of tight monetary policy and further fiscal consolidation, together with proper implementation of the public investment monitoring and control framework, should support internal and external balance.
She added that the allocation of part of the funding from the Ras El-Hekma agreement to accumulate reserves and reduce debt provides an additional cushion against shocks.
In February, a private consortium led by ADQ, an Abu Dhabi-based sovereign wealth fund, signed a deal with Egypt to invest $35 billion in Ras El-Hekma, a Mediterranean coastal area 350 km northwest of Cairo. It is the largest single foreign direct investment in Egypt's history.
Looking ahead, the IMF official said that the implementation of the structural reform program is essential for inclusive and sustainable growth. Increasing tax revenues, improving debt management and using divestment resources to reduce debt will enable more productive spending, including targeted social spending.
Restoring energy prices to cost-recovery levels by December 2025 is essential for reliable energy supply and sectoral balance. In order to attract private investments, strengthening the administration of state-owned banks, enforcing the policy of state ownership, increasing fiscal transparency and leveling the conditions for economic competition are essential.
“Risks remain significant. Regional conflicts and uncertainty over the duration of trade disruptions in the Red Sea are important sources of external risk,” Sayeh said.
She added: “Maintaining appropriate macroeconomic policies, including a flexible exchange rate regime, would help ensure economic stability. Meaningful progress on the structural reform agenda would significantly improve growth prospects. Prudent management of the recovery of capital inflows will also be important to contain potential inflationary pressures and limit the risk of future external pressures.
