IMF approves $820m disbursement to Egypt

RIYADH: The International Monetary Fund has approved the disbursement of around $820 million to Egypt following the completion of the third review of its enhanced arrangement with the country.

The IMF approved an expanded $8 billion aid program for the African country in March after the Gaza crisis negatively affected the country's economy, leading to a decline in tourism and revenues from the Suez Canal halved due to Yemeni attacks on shipping in the Red Sea.

The deal was concluded under the Extended Fund Facility, a program designed to support countries with severe medium-term balance of payments problems resulting from structural issues that require time to resolve. The 46-month EFF agreement with Egypt was approved on December 16, 2022.

According to the international organization, Egypt has made remarkable progress in its efforts to stabilize the economy. Inflation is still high but is gradually declining. A flexible exchange rate regime remains a central part of the program, the IMF said in a press release.

Since the first and second reviews in March, Egypt's macroeconomic situation has improved. Inflation is declining, foreign exchange shortages have been addressed, and fiscal targets, including those related to infrastructure spending, have been met.

“These improvements are beginning to have a positive impact on investor confidence and private sector sentiment,” the IMF added.

Maintaining a flexible exchange rate and a liberalized foreign exchange system is essential to avoid external imbalances. To further reduce inflation, the central bank's data-driven approach is necessary.

The Fund said continued fiscal consolidation would help to bring public debt under control, while efforts to strengthen domestic government revenues and contain fiscal risks in the energy sector would ensure that funds were available. These measures were necessary for essential spending in health and education and would create fiscal space for increased social spending to support disadvantaged groups.

“Although progress has been made on some key structural reforms, greater efforts are needed to implement the state ownership policy,” the press release added.

Strengthening the resilience of the financial sector, improving governance practices and increasing competition in the banking sector should be top priorities to lead Egypt to private sector growth that creates jobs and opportunities for all.

Egyptian Finance Minister Ahmed Kojak said the IMF's approval of the third review of the economic reform program was a vote of confidence in the government's program, which includes financial and economic reforms and goals.

He added that this was also a reassuring message and reflected the ability of the Egyptian economy to increase stability.

IMF Deputy Managing Director and Acting Chair Antoinette M. Sayeh said the reforms were producing positive results: the unification of exchange rates and the tightening of monetary policy led to a reduction in speculation and subdued price growth.

Sayeh said: “The policy framework is expected to help maintain macroeconomic stability. A sustained shift to a flexible exchange rate regime and a liberalized foreign exchange system, continued implementation of a tight monetary policy and further fiscal consolidation, coupled with the proper implementation of the framework for monitoring and controlling public investments, should support internal and external balance.”

She added that allocating part of the financing from the Ras El-Hekma agreement to reserve building and debt reduction would provide an additional buffer against shocks.

In February, a private consortium led by Abu Dhabi-based state investment fund ADQ signed an agreement with Egypt to invest $35 billion in Ras El-Hekma, a Mediterranean coastal region 350 kilometers northwest of Cairo, the largest foreign direct investment in Egypt's history.

Looking ahead, the IMF official said that implementing the structural reform agenda is crucial for inclusive and sustainable growth. Increasing tax revenues, improving debt management and using disinvestment funds to reduce debt would enable more productive spending, including targeted social spending.

To ensure a reliable energy supply and balance in the energy sector, it is essential to bring energy prices back to cost-covering levels by December 2025. To attract private investment, better management of state-owned banks, stronger state ownership policies, greater fiscal transparency and a level playing field are essential.

“The risks remain significant. Regional conflicts and uncertainty about the duration of the trade disruption in the Red Sea are important sources of external risks,” said Sayeh.

She added: “Maintaining appropriate macroeconomic policies, including a flexible exchange rate regime, would help ensure economic stability. A meaningful continuation of the structural reform programme would significantly improve growth prospects. Prudent management of the resumption of capital inflows will also be important to contain potential inflationary pressures and limit the risk of future external pressures.”

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