The Egyptian authorities remain committed to reaching cost recovery for most fuel products by mid-2019 and implementing automatic fuel price indexation, which together are critical to encourage more efficient energy use, and combined with revenue enhancing reforms, will help create fiscal space for high-priority spending on health and education, David Lipton, first deputy managing director and acting chair of the International Monetary Fund (IMF), said.
Egypt’s economy outlook remains favourable, supported by strong policy implementation, he added on Wednesday following Monday’s executive board completion of the fourth review under the Extended Fund Facility (EFF).
Notably, Central Bank of Egypt (CBE) has already received $2bn following the completion of the fourth review, bringing total disbursements to about $10bn, according to sources of the CBE on Wednesday.
A more difficult external environment poses new challenges on the economy as global financial conditions have tightened, Lipton noted, adding, “Egypt has successfully weathered recent capital outflows, but consistent policy implementation will be essential to further strengthen policy buffers, including by containing inflation, enhancing exchange rate flexibility, and reducing public debt.”
The IMF revealed part of its fourth review’s outputs including keeping the GDP growth at 5.5% over the fiscal year (FY) 2018/19 before hiking to 5.9% in FY 2019/20.
Robust growth and a narrowing of the current account deficit reflect a rebound in tourism and strong remittances, while unemployment has declined to its lowest level since 2011, Lipton added.
The recent pickup in headline inflation reflected temporary increases in food and energy prices, but a restrictive monetary policy stance has helped to reverse the increase, and keep core inflation well anchored, he acknowledged.
Furthermore, the IMF amended its projection for the consumer prices indicator at the end of FY 2018/19 from 13.1% to 14.5% while it is expected to reach 10.7% at end of FY 2019/20.
The consumer prices average for FY 2018/19 is expected to reach 15.8% compared to 14.4% over third review projections.
The public-debt-to-GDP ratio declined markedly last year and is projected to decline further over the medium term due to the authorities’ fiscal consolidation efforts and high nominal GDP growth, he said, noting that monetary policy remains anchored by the medium-term objective of bringing inflation to single digits.
External debt of the GDP will hike to 18% over FY 2018/19 compared to third review projection of 17% while it will reach 17.6% of the GDP over FY 2019/20.
The financing gap will record zero over FY 2018/19 and FY 2019/20, revealed the IMF data, adding that trade balance will reach -12.4% over FY 2018/19 and -11.3% over FY 2019/20.
The authorities have taken important steps to deepen the foreign exchange market and allow greater exchange rate flexibility, including by eliminating the repatriation mechanism, he said.
“This year’s primary surplus target of 2% of the GDP appears on track, which would achieve a cumulative fiscal adjustment of 5.5% of the GDP in three years,” Lipton noted.
“The authorities’ structural reform agenda aims to support inclusive growth by addressing long-standing constraints to private sector development. These include reforms to improve competition policy, public procurement, management of state owned enterprises, and land allocation. Sustained implementation of these reforms is essential to reduce opportunities for rent seeking and to support strong and inclusive medium-term growth and job creation,” he mentioned
IMF data anticipated unemployment to keep declining over FY 2018/19 to 9.6% and 8.3% in FY 2019/20.
On 4 February 2019, the executive board of the IMF completed the fourth review of Egypt’s economic reform programme supported by an arrangement under the EFF.
The three-year EFF arrangement in the amount equivalent to SDR 8.597bn (about $12bn at the time of approval, or 422% of the quota) was approved by the executive board on November 11, 2016 to support the authorities’ economic reform programme.