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 aid program for the African country in March after the Gaza crisis adversely affected the country's economy. This slowed tourism and cut Suez Canal revenues in half due to Yemeni attacks on Red Sea shipping.
The deal was made under the Extended Fund Facility, a program designed to help countries with serious medium-term balance of payments problems due to structural issues that require time to address. Egypt's 46-month EFF arrangement 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, says the IMF in a press release.
Since the combined first and second reviews in March, Egypt has seen improvements in macroeconomic conditions. Inflation is easing, foreign exchange shortages have been resolved 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 currency system is essential to prevent external imbalances, while the central bank's data-driven approach is needed to further reduce inflation.
The fund said continued fiscal consolidation will help manage public debt, while efforts to strengthen domestic revenues and limit fiscal risks from the energy sector will ensure resources are available. These measures are necessary for essential spending on health and education, creating fiscal space for increased social spending to support vulnerable groups.
“Although progress has been made on some important structural reforms, greater efforts are needed to implement the state ownership policy,” the press release added.
Improving the resilience of the financial sector, improving governance practices and increasing competition in the banking sector should be key priorities, as these are critical to driving Egypt towards private sector-led growth that creates jobs and opportunities for all.
Egypt's Finance Minister Ahmed Kojak said the IMF's approval of the third review under 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 reflecting the ability of the Egyptian economy to improve stability.
IMF Deputy Managing Director and Acting Chair Antoinette M. Sayeh said the reforms are yielding positive results, with exchange rate unification and monetary policy tightening, reducing speculation and dampening price growth.
Sayeh said: “Policy settings are expected to help maintain macroeconomic stability. A sustained transition to a flexible exchange rate regime and a liberalized currency system, continued implementation of a tight monetary policy stance and further fiscal policy consolidation combined with proper implementation of the framework for monitoring and controlling public investments should support internal and external balance.”
She added that the allocation of part of the financing from the Ras El-Hekma deal to reserve accumulation and deleveraging provides an 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 El-Hekma, a coastal region on the Mediterranean Sea 350 km northwest of Cairo. This marks the largest single 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 divestment resources for debt reduction 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 sector balance. Improved governance of state-owned banks, promotion of state ownership policies, increased fiscal transparency and a leveled economic playing field are essential to attract private investment.
“Risks remain significant. Regional conflicts and uncertainty about 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. Moving forward meaningfully with the structural reform program would significantly improve growth prospects. Managing the resumption of capital inflows prudently will also be important to limit potential inflationary pressures and limit the risk of future external pressures.”
