An International Monetary Fund (IMF) delegation is in Cairo to hold meetings with government officials and the Central Bank of Egypt to touch base on developments in Egypt’s reform programme. The meetings mark the beginning of the IMF’s fifth review of the loan agreement initially signed in 2022 and augmented last year to $8 billion to cushion the impact of the war in Gaza on the economy.
In compliance with its commitments to the IMF, the government has introduced several changes since the finalisation of the new deal in March 2024. It has started tightening expenditure on investments, increasing the transparency of economic authorities’ budgets and integrating most them into a unified budget. It is also phasing out oil subsidies and
maintaining a flexible exchange rate, leaving the Egyptian pound-dollar exchange rate to be determined by supply and demand.
According to the outcomes of the third and fourth reviews of the programme, the IMF is unhappy with the pace of the privatisation programme. Though the government announced new plans for divestment, little has been achieved on the ground, according to officials familiar with the review process.
“The issue the fund is least satisfied with is the pace of the state’s withdrawal from economic activities and the cessation of state competition with the private sector, which the fund considers the core of its structural reform philosophy,” wrote economic expert Medhat Nafie in his weekly column in Al-Masry Al-Youm newspaper.
In addition to the list of 35 companies and banks in which the government has said it will sell stakes, in recent months it has revealed plans to privatise the management of hospitals, ports, and airports. Last week, it announced a deal with AD Ports to manage and operate a port in the Suez Canal Economic Zone.
A meeting headed by Prime Minister Mustafa Madbouli last week shed light on developments in implementing the 2023 state ownership programme. Since the adoption of the programme, the state has divested assets worth $6 billion through 21 deals.
Enterprise, an online news outlet, quoted government officials as saying that the government plans to raise $4-5 billion from deals during the 2025-26 fiscal year.
Why does Egypt need to privatise? Nafie answers the question by referring to the widening balance of payments deficit. The deficit reached $503 million in the first half of the year, compared with a $409.6 million deficit for the same period last year. This means transactions with the rest of the world through imports and exports, net direct investments, the Suez Canal, tourism, and remittances yield a negative balance, proof that Egypt’s foreign currency resources are not enough to cover its needs.
The $6 billion of net FDIs together with the 80 per cent increase in remittances failed to offset the 62 per cent decline in Suez Canal receipts, a situation compounded by the widening trade deficit.
Nafie attributes the poor balance of payments performance to inefficient state management of assets, poor planning on how to cover energy needs, and declining productivity in general, and in value-added industries in particular.
“Such a situation forces the state to resort to greater borrowing and imports, further weakening the production and export structure. The external deficit appears sticky and cannot be eliminated by liberalising the exchange rate or any corrective monetary or fiscal measures.”
While news of an increase in net foreign reserves is welcome in such circumstances, a close look at its breakdown raises concerns. Net foreign reserves rose to $48.1 billion at the end of April 2025, its 32nd consecutive month-on-month increase.
But most of the increase is the result not of a hike in foreign currency resources but due to the jump in the value of gold reserves and increases in the combined value of foreign loans, bonds, and sukuk (Sharia-compliant bonds).
The Finance Ministry is gearing up for its second sukuk issue before the end of the current fiscal year, according to sources talking to local media outlets. Finance Minister Ahmed Kouchouk revealed last month that the country plans to offer $2 billion of sukuk during 2025 through a number of offerings. In January, Egypt floated a $2 billion eurobond offering, its first in almost three years.
The sukuk issue comes despite the Ministry of Finance’s plans to reduce Egypt’s debt-to-GDP ratio to 85 per cent by the end of this fiscal year, with the government also set on decreasing external debt by $2 billion annually to bring it within sustainable levels.
The government is keen to secure foreign currency revenues through attracting more foreign investments. In addition to tangoing with Saudi and Kuwaiti businessmen and wealth fund managers in recent months, with agreements to provide investors with golden licences, the government is also keen to give incentives to international oil and gas companies to increase their investments in the country and guarantee a stable flow of petroleum products in the local market.
The Madbouli government increased Exxon Mobil’s production share from the Masry and Cairo offshore concessions to 40 per cent. It has also extended the concessions’ cost recovery period from five to seven years.
The government is also working on clearing its arrears to foreign partners. An anonymous government source told Al-Sharq Bloomberg that the Egyptian government paid $1.2 billion in new overdue payments to foreign oil companies earlier this month, bringing the total arrears repaid by the government since June to $7.5 billion. After the latest payment, outstanding financial dues to foreign oil companies stand at $3.5 billion.
One of the main reasons countries work on increasing foreign currency reserves is that the availability of foreign currency helps lower the exchange rate, decreasing inflationary pressures.
After falling by half in February, annual headline urban inflation rose for the second month in a row in April, up to 13.9 per cent from the 13.6 per cent recorded in March.
The CBE decreased interest rates by 2.25 per cent during its meeting at the end of April, the first such move since March.
* A version of this article appears in print in the 15 May, 2025 edition of Al-Ahram Weekly
Short link: