The International Monetary Fund (IMF) has reached a staff-level agreement with Egyptian authorities on the fourth review under the Extended Fund Facility (EFF) arrangement. Pending approval by the Executive Board, Egypt will gain access to approximately $1.2 billion, equivalent to SDR 922.87 million.
According to the IMF, "The Egyptian authorities have continued to implement key policies to preserve macroeconomic stability, despite ongoing regional tensions that are causing a sharp decline in Suez Canal receipts."
Due to challenging external and domestic economic conditions, Egypt has requested adjustments to its medium-term fiscal commitments. The primary balance surplus, excluding divestment proceeds, is projected to reach 4% of GDP in the next fiscal year (FY 2025/26), which is half a percent less than previous commitments. It is expected to rise to 5% of GDP in FY 2026/27, aligning with earlier commitments. This adjustment aims to create space for critical social programs while maintaining debt sustainability.
The IMF emphasizes the need for continued fiscal consolidation efforts to ensure debt sustainability and manage interest costs and domestic financing requirements. There is also a focus on containing fiscal risks from state-owned enterprises in the energy sector and enforcing public investment ceilings.
The Egyptian government's plans to streamline and simplify the tax system are acknowledged as commendable by the IMF; however, further reforms are necessary for enhancing domestic revenue mobilization. Authorities have committed to reforms aimed at increasing tax-to-GDP revenue by two percent over two years by eliminating exemptions rather than raising tax rates.
Both parties agreed on expediting reforms to improve Egypt's business environment and promote private sector growth. The aim is to level the playing field, reduce state influence in the economy, boost private sector confidence, attract foreign investment, and unlock economic potential.
Despite external challenges, both sides recognized the need for accelerated efforts in Egypt's divestment program. The authorities reiterated their commitment in this area as crucial for supporting private sector development and reducing debt burdens.
The Central Bank of Egypt reaffirmed its commitment "to sustain a flexible exchange rate regime," maintain tight monetary conditions against inflationary pressures, and modernize operations towards an inflation-targeting regime. Enhancing financial sector resilience and governance practices remains a priority.
For further details on recent discussions regarding these developments, refer to IMF Press Release 24/429 dated November 20, 2024.