The International Monetary Fund (IMF) mission for Egypt, headed by Subir Lall, completed its fifth and final review of the country’s economic reform programme and reached a staff-level agreement with Egyptian authorities to disburse the final $2bn tranche of the $12bn loan agreement, the IMF revealed on Friday.
However, the staff-level agreement is subject to approval by the IMF’s executive board.
According to the press statement, the Egyptian authorities’ economic reform efforts have been successful in achieving macroeconomic stabilisation, growth recovery, and an improvement in the business climate.
Egypt’s GDP growth accelerated from 4.2% in the fiscal year (FY) 2016/17 to 5.3% in FY 2017/18, unemployment declined from 12% to below 9%, and the current account deficit narrowed from 5.6% to 2.4% of the GDP.
“Gross general government debt is expected to decline according to our estimates to about 85% of the GDP in FY 2018/19 from 103% of the GDP in FY 2016/17. International reserves increased from $17bn in June 2016 to $44bn in March 2019. As a result, Egypt has become more resilient to the elevated uncertainty in the external environment,” the statement read.
Furthermore, in regards to monetary policy, the fund believes it has been appropriately calibrated, helping to reduce inflation from 33% in July 2017 to 13% in April 2019, despite occasional supply-side shocks and excessive volatility in some food prices.
“Egypt is on track to achieve its three-year fiscal consolidation objective of 5.5% of GDP in the primary balance. The primary surplus target of 2% of GDP in FY 2018/19 is within reach. The fuel subsidy reform is nearing a successful completion, creating space for spending on better targeted social programmes. Going forward, the main priorities include raising tax revenues for much needed spending on health, education, and social programmes,” the statement added.
The IMF also emphasised Egypt’s implementation of a social protection package, which eases the burden of adjustment on the vulnerable. The reduction in regressive and inefficient fuel subsidies has provided the financial means for it.
Moreover, the IMF said the pension increases and targeted initiatives, such as Takafol and Karama, Forsa, and Sakan Karim, aim to support the poorest and deliver public services to the most underserved groups. The Mastoura loan project provides microfinancing to women to increase female employment. The measured increases in public sector wages and progressive tax credits have benefited the middle class. Efforts are ongoing to further improve targeting and expand the coverage of the social safety net.
“The objective of structural reforms is to generate higher and more inclusive growth and create jobs for Egypt’s young and growing population. Steady progress is being made in implementing measures that aim to increase productivity, remove barriers to investment and trade, improve governance, and reduce the role of the state in the economy. The key reform areas include: improving access to finance; improving industrial land allocation; enhancing competition; strengthening transparency and management of state-owned enterprises, and fighting corruption. Timely completion of the planned measures would yield significant dividends in terms of higher investment, inclusive growth, and job creation. Staff welcomes the authorities’ strong commitment to maintain the reform momentum beyond the programme, which expires in November,” the statement concluded.