The Executive Board of the International Monetary Fund (IMF) approved a 46-month arrangement under the Extended Fund Facility (EFF) for Egypt in an amount of SDR 2.350.17 million (equivalent to 115.4 percent of quota or about US$3 billion). The Executive Board’s decision enables an immediate disbursement of SDR 261.13 million (equivalent to about US$ 347 million), which will help meet the balance of payments need and provide support to the budget. Over the course of the program, the EFF is expected to catalyze additional financing of about US$14 billion from Egypt’s international and regional partners, including new financing from GCC countries and other partners through the ongoing divestment of state-owned assets as well as traditional forms of financing from multilateral and bilateral creditors.
The authorities’ economic program supported by the EFF arrangement envisages the implementation of a comprehensive policy package to preserve macroeconomic stability, restore buffers, and pave the way for sustainable, inclusive, and private-sector-led growth. Specifically, the package includes (i) a permanent shift to a flexible exchange rate regime to increase resilience against external shocks and to rebuild external buffers; (ii) monetary policy aimed at gradually reducing inflation in line with the central bank’s targets together with strengthening policy transmission, including by transitioning away from subsidizing lending schemes, (iii) fiscal consolidation and debt management to ensure downward trajectory in public-debt-to-GDP and contain gross financing needs, while increasing social spending and strengthening social safety net to protect the vulnerable, and managing national investment projects in a manner consistent with external sustainability and economic stability; and (iv) wide-ranging structural reforms to reduce the state footprint, level the playing field across all economic agents, facilitate private-sector-led growth, and strengthen governance and transparency in the public sector.
The authorities have also requested access under the Resilience and Sustainability Facility (RSF), which could provide up to an additional SDR 1 billion to support climate-related policy goals. Discussions are expected to take place in the context of future EFF reviews.
Following the Executive Board discussion, Ms. Kristalina Georgieva, Managing Director and Chairman of the Board, made the following statement:
“Egypt showed resilience to the COVID-19 crisis, supported by previous Fund-supported programs. While economic recovery gained momentum in 2021, imbalances also started building amidst a stable exchange rate, high public debt, and delayed structural reforms. Russia’s war in Ukraine crystallized these pre-existing vulnerabilities, triggering capital outflows, and, in the context of a still-stabilized exchange rate, reduced the central bank’s foreign reserves and banks’ net foreign assets and widened the exchange rate misalignment.
“The authorities’ recent commitment to a durable shift to a flexible exchange rate regime and to unwind prior policy distortions, supported by an upfront monetary policy tightening and further enhancements to the social safety net, are welcome steps..
“The authorities’ economic program supported by the 46-month EFF arrangement provides a credible policy package to reduce imbalances, maintain macroeconomic stability, restore buffers and improve resilience against shocks, and pave the way for private-sector-led growth. A permanent shift to a flexible exchange rate regime will help mitigate external shocks and prevent imbalances from re-emerging and allow monetary policy to focus on maintaining price stability. Fiscal consolidation will ensure medium-term debt sustainability, while expansion of social spending will help alleviate poverty and protect the vulnerable. Structural reforms will reduce the state footprint and level the playing field between the public and private sector, strengthen private-sector-led growth, and enhance governance and transparency. The EFF will fill part of the financing gap with implementation of the underlying policy package unlocking substantial additional financing from Egypt’s partners, including financing in the form of investments.
“Given the heightened uncertainty and risks to the global economic outlook, the authorities’ commitment to stay the course on exchange rate flexibility, prudent macroeconomic policies, and structural reforms is critical. Their strong ownership and track record under previous Fund-supported programs and political support for the policy package are important risk mitigating factors to achieving the objectives of the Fund-supported program.”