Egypt Gets $820m as IMF Increases Facility by $5bn
Abdel-Fattah al-Sisi. Egypt President

The Executive Board of the International Monetary Fund (IMF) completed the first and second reviews of Egypt’s Extended Fund Facility arrangement with Egypt. It approved an augmentation of the original program by about US$5 billion. 

This enables the authorities to draw about US$820 million, according to an official statement from the multilateral lender. Egypt’s 46-month EFF arrangement was approved on December 16, 2022. In completing the review, the Executive Board assessed that all but one of the quantitative performance targets for end-June 2023 were met, the official release added.

The IMF approved the authorities’ request to have their non-compliance with the June performance criterion on Net International Reserves waived in exchange for corrective actions. Since the program’s approval, the macroeconomic environment has been difficult due to rising inflation, a lack of foreign exchange, high debt levels, and financing requirements.

The difficult external environment generated by Russia’s war in Ukraine was subsequently aggravated by the conflict in Gaza and Israel, as well as tensions in the Red Sea.

These developments increased the complexity of macroeconomic challenges and called for decisive domestic policy action supported by a more robust external financing package, including from the IMF.

In this setting, economic activity was affected by delayed policy adjustments and external shocks. Growth slowed to 3.8 percent in FY2022/23 due to weak confidence and foreign exchange shortages and is projected to slow further to 3 percent in FY2023/24 before recovering to about 4½ percent in FY24/25.

Although inflation is still high, it should start to decline in the medium run as the tightening of policy takes effect. The US$35 billion investment deal that an Abu Dhabi-based holding company recently revealed in Ras El-Hekma has relieved short-term pressures on Egypt’s balance of payments and, with wise use, will help Egypt rebuild buffers to handle future shocks.

Nonetheless, steadfast implementation of the economic policies under the program remains critical to sustainably address Egypt’s macroeconomic challenges, as does robust delivery on structural reforms to allow the private sector to become the engine of growth.

Ms. Kristalina Georgieva, Managing Director and Chair, stated following the Executive Board’s discussion: “With the fallout from the recent conflict in Gaza and Israel, Egypt is facing significant macroeconomic challenges that have become more complex to manage.” The disruptions in the Red Sea are also reducing Suez Canal receipts, which are an important source of foreign exchange inflows and fiscal revenue.

“The authorities have significantly strengthened the reform package underlying the Extended Fund Facility arrangement, supported by an augmentation of access. Recent measures toward correcting macroeconomic imbalances, including unification of the exchange rate, clearance of the foreign exchange demand backlog, and significant tightening of monetary and fiscal policies, were difficult, but critical steps forward, and efforts should be sustained going forward.

“The authorities’ commitment to use a large part of the new financing from the Ras El-Hekma deal to improve the level of reserves, fast-track the clearance of foreign currency backlogs and arrears, and reduce government debt upfront is prudent.

“The authorities’ policies are well calibrated to entrench macroeconomic stability while protecting the vulnerable. The Central Bank of Egypt’s resolve to focus squarely on reducing inflation and to tighten further, if necessary, is key to preventing further erosion of the purchasing power of households.

“Implementation of the newly established framework to monitor and control public investment will help manage excess demand. The pursuit of a revenue-based fiscal consolidation will put debt firmly on a downward path and provide resources for expanding the social safety net. In this regard, it remains essential to replace untargeted fuel subsidies with targeted social spending as part of a sustained fuel price adjustment package.

“With policies to restore macroeconomic stability in place, the stage is set for accelerating implementation of the structural reform agenda intended to deliver inclusive and sustainable growth. Withdrawing the state and military from economic activity and levelling the playing field between the public and private sectors is key to attracting foreign and domestic private investment in Egypt.

“Achieving these goals is subject to risks. Externally, uncertainty remains high. Domestically, sustaining the shift to a liberalized foreign exchange system, maintaining tight monetary and fiscal policies, and integrating transparently off-budget investment into macroeconomic policy decision-making will be critical.

“Managing the resumption of capital inflows prudently will be important to contain inflationary pressures and limit the risk of future external pressures.” #Egypt Gets $820m as IMF Increases Facility by $5bn Zenith Bank to Submit 2023 Financial Statement April 30

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