This review is the first to be completed after the IMF raised the loan amount in April from $3 billion to $8 billion, at the the Egyptian government's request, given the effect of regional geopolitical tensions on the country’s economy.
This meeting comes two months after the IMF announced it had reached a staff-level agreement with Egyptian authorities on the policies and measures under this review. Once completed, Egypt will receive a tranche of $1.2 billion, and the programme’s remaining will be completed towards its end in September 2026.
Key policies under 4th review
According to IMF documents, Egypt requested a recalibration of its medium-term fiscal commitments under this review, citing difficult external conditions and a challenging domestic economic environment.
In this respect, the primary balance surplus (excluding divestment proceeds) is projected to reach four percent of GDP in FY2025/2026, which rolls out on 1 July, (½ percent of GDP less than earlier program commitments) and then increase to five percent of GDP in FY2026/2027, in line with earlier commitments.
“This short-term recalibration seeks to ensure that fiscal consolidation provides some space to increase critical social programs in support of vulnerable groups and the middle class while ensuring debt sustainability,” read the IMF documents.
Egypt must implement fiscal consolidation to maintain debt sustainability and reduce high-interest costs and overall domestic financing requirements.
In parallel, the country is also required to contain fiscal risks stemming from state-owned enterprises (SOEs) in the energy sector and to enforce the strict implementation of the public investment ceiling, which includes capital expenditures associated with public entities that operate outside the general government budget.
Moreover, Egypt is committed to applying further reforms to simplify the tax system and enhance domestic revenue mobilization efforts.
The authorities are committed to implementing a package of reforms to increase the tax-to-GDP revenue by two percent of GDP over the next two years, focusing on eliminating exemptions rather than raising tax rates.
Egypt must also adopt a comprehensive reform package to rebuild fiscal buffers to reduce debt vulnerabilities and generate additional space to increase social spending, especially in health, education, and social protection.
Under the fourth review, Egypt will accelerate reforms to improve the business environment, by which the private sector becomes the main engine of the country’s growth.
In this regard, Egypt has to level the playing field, reduce the state's economic footprint, and increase private sector confidence to attract foreign investment and develop its full economic potential.
Moreover, speeding up the divestment programme is a cornerstone of the fourth review to address the impacts of the difficult external environment on the country’s economy.
On the monetary policy level, the Central Bank of Egypt (CBE) will sustain a flexible exchange rate regime to protect the economy against external shocks. The CBE will also keep a tight monetary cycle to reduce inflationary pressure and upgrade its operations to become an inflation-targeting regime.
Approval on $1.3 bln RSF anticipated
Egypt’s request to secure a $1.3 billion loan under the IMF’s Resilience and Sustainability Facility (RSF) will also be decided on during this meeting.
Once approved, the loan will be disbursed to the country in tranches subject to several reviews.
The RSF provides longer-term financing to strengthen economic resilience and sustainability. It supports policy reforms that reduce macro-critical risks associated with climate change and pandemic preparedness.
The RSF is also concerned with augmenting policy space and financial buffers to mitigate the risks of such longer-term structural challenges.
The minimum duration of this programme is 18 months.
In its latest update on its flagship World Economic Outlook Report released in January, the IMF cut its projections for Egypt’s real GDP growth by 0.5 percent and one percent for the FY2024/2025 and FY2025/2026, respectively, to stand at 3.6 percent and 4.1 percent.
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