The International Monetary Fund (IMF) expects to approve $1.6bn in financing for Egypt, the third tranche of the country’s Stand-by Arrangement (SBA) $5.2bn loan programme, in the coming weeks.
The IMF said, in a press statement, that its team, led by Celine Allard, held a virtual mission from 4 to 24 May 2021 with Egyptian authorities.
The mission held discussions on the 2021 Article IV Consultation with Egypt, and the second review of the country’s economic programme supported by the IMF’s 12-month SBA.
“The IMF staff team and the Egyptian authorities have reached a staff-level agreement on the second review of Egypt’s economic programme, supported by the IMF’s $5.2bn Stand-by Arrangement,” Allard said, “This agreement is subject to approval by the IMF’s Executive Board, which will take place in the coming weeks.”
She also said, “Upon approval, an additional SDR 1.16bn (about $1.6bn) will be made available to Egypt.”
Allard added that over the past 12 months, the Egyptian authorities’ strong performance and commitment has helped achieve the programme’s objectives of maintaining macroeconomic stability during the pandemic. The official efforts have also protected the necessary social and health spending, whilst implementing key structural reforms.
She noted that Egypt’s net international reserve accumulation and the primary balance, in fact, exceeded the programme targets.
Allard also pointed out that Egypt’s inflation continued to be subdued, with the March outturn of 4.5% breaching the lower inner bound of the monetary policy consultation clause.
“All structural benchmarks were met, including further advancing reforms related to fiscal transparency and governance, social protection, and improvement in the business environment, while continuing efforts directed towards reducing debt vulnerabilities and creating more budget space for priority spending,” she said, “The publication of information related to COVID-19 crisis-related spending, procurement plan, and beneficial ownership of awarded entities is a welcome step towards further enhancing transparency.
Allard also said that the Egyptian economy has shown resilience, supported by the authorities’ strong implementation of their policy programme. Growth is expected to be 2.8% in fiscal year (FY) 2020/21, rising to 5.2% in FY 2021/22.
However, uncertainty remains against the backdrop of lingering pandemic-related risks, Allard noted.
Policies are appropriately focused on supporting the recovery in the near term, while deepening and broadening structural reforms to unleash Egypt’s enormous growth potential in the medium term.
Regarding the monetary policy implemented by the Central Bank of Egypt (CBE), Allard said that it remains data dependent.
“We welcome the CBE’s readiness to act as necessary to support economic recovery amid muted inflation,” she noted, “Continued exchange rate flexibility in both directions will help absorb external shocks, whilst Egypt’s banking system remains liquid, profitable, and well capitalised.”
Talking about Egypt’s fiscal policy in FY 2021/22, she said that it appropriately targets a gradual consolidation to balance needed support for the economic recovery, while safeguarding fiscal sustainability.
She added that the continued shift towards higher investments in infrastructure, health, and education in the next fiscal year is also welcome.
Allard said that the government’s commitment to returning to a primary surplus of 2% of GDP, starting in FY 2022/23, and as the economic recovery becomes entrenched will be essential to reduce public debt and support fiscal sustainability.
She added that the recent launch of the National Structural Reform Program (NSRP) is a signal of the government’s commitment to fostering human capital development. It also reflects the commitment to more efficient and transparent public institutions, a more competitive and export-oriented private sector, and a greener economy.
Meanwhile, Allard said that it will be important in the coming months to further define specific policy measures to support these objectives. This includes allowing more space for the private sector to operate in a competitive environment, and to encourage exports through further reducing trade impediments.