The Executive Board of the International Monetary Fund (IMF) has completed the third review of Egypt’s $8 billion loan programme, allowing the disbursement of the third tranche of the loan and worth approximately $820 million.

The fourth review is scheduled to be completed between March and December 2025 and is to be followed by the disbursement of a $1.3 billion tranche of the loan. Egypt’s 46-month loan arrangement was approved in December 2022 and is to conclude in September 2026.

In an online meeting with journalists on Tuesday, IMF Mission Chief for Egypt Ivanna Vladkova Hollar said the country has met all the commitments required under the third review of the loan programme.

According to the IMF, macroeconomic conditions in Egypt have been improving since the approval of the combined first and second reviews in March: inflationary pressures are gradually abating; foreign-exchange shortages have been eliminated; and fiscal targets (including those related to rationalising spending on large-scale infrastructure projects) have been met.

These improvements have started to have a positive effect on investor confidence and private-sector sentiment.

However, the IMF also said that the difficult regional environment due to the conflict in Gaza, as well as tensions in the Red Sea, along with domestic policy and structural challenges, required the continued implementation of the programme commitments.

Maintaining a flexible exchange-rate regime and a liberalised foreign-exchange system will be imperative for the Egyptian economy to avoid a buildup of external imbalances, according to an IMF statement on Monday.

A data-driven approach by the Central Bank of Egypt (CBE) is needed to lower inflation. Ongoing fiscal consolidation efforts will help place public debt on a decisive downward path while ensuring that resources are still available to meet vital spending needs, such as on health and education, the fund said.

While there has been progress on some structural reforms, greater efforts are needed to implement the State Ownership Policy Document, the statement said. They include accelerating the pace of the divestment programme, pursuing reforms to streamline business regulations, expediting trade facilitation practices, and creating a “level playing field” that avoids unfair competitive practices by state-owned companies.

Bolstering financial-sector resilience and governance practices and competition in the banking sector should also be key priorities. These measures are crucial for steering Egypt towards the private-sector-led growth that can generate jobs and opportunities for everyone, the fund said.

Speaking to Al-Ahram Weekly, Hollar noted that a number of privatisation deals are in various stages of completion with advisors hired to look into the bids that are being evaluated.

“The lack of recent news on completed transactions doesn’t mean that there aren’t significant ongoing preparatory efforts. Of course, the authorities are committed to moving forward with divestment plans,” she said.

Antoinette M. Sayeh, IMF deputy managing director and acting chair of the Executive Board, said that the reforms under the programme supported by the loan are yielding positive results, adding that the unification of the exchange rate and the accompanying monetary policy tightening have curtailed speculation, brought in foreign-currency inflows, and moderated price growth.

Sayeh said there are signs of a recovery in sentiment, which indicates that private-sector growth is poised for a rebound.

“A sustained shift to a flexible exchange-rate regime and a liberalised foreign-exchange system, continued implementation of a tight monetary policy stance, and further fiscal consolidation coupled with proper implementation of the framework to monitor and control public investment should support internal and external balances,” Sayeh said.

“The allocation of a portion of the financing from the Ras Al-Hekma deal to reserve accumulation and debt reduction provides an additional cushion against shocks.”

Looking ahead, Sayeh said that the implementation of the structural reform agenda is key to achieving more inclusive and sustainable growth.

“Reforms that boost tax revenue, deliver a more robust debt-management strategy, and bring additional resources from divestment to debt reduction would create space for more productive spending, including additional targeted social spending,” she said.

Concerning the fuel-subsidies system, Sayeh said that restoring energy prices to their cost-recovery levels, including retail fuel prices, by December 2025 is essential to reducing imbalances in the sector.

Hollar told the Weekly that despite the gradual increases the government is to implement in the prices of fuel, inflation in Egypt is expected to decline, reaching 15 per cent in the current 2024-25 fiscal year.

Enhancing the governance of state-owned banks, advancing the state-ownership policy agenda, increasing fiscal transparency, and levelling the economic playing field are critical to securing greater private investment, Sayeh said.

However, the repercussions of the Israeli war on Gaza are still casting a shadow on Egypt’s performance under the programme. According to Sayeh, regional conflicts and uncertainty about the duration of the disruption of trade in the Red Sea are important sources of external risk.

“Maintaining appropriate macroeconomic policies, including a flexible exchange-rate regime, would help to ensure economic stability. Prudent management of capital inflows will also be important to contain potential inflationary pressures and limit the risk of future external pressures,” she said.

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* A version of this article appears in print in the 1 August, 2024 edition of Al-Ahram Weekly