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IMF reaches staff-level agreement to disburse final $2 billion tranche of loan to Egypt

Ahram Online , Friday 17 May 2019
IMF headquater
A file photo from IMF Headquarter (Photo: Reuters)

The IMF said on Friday that it has reached a staff-level agreement on a review of the final $2 billion tranche of a $12 billion loan to Egypt, praising the reform policies adopted by the government.

The approval of the $2 billion remaining is subject to approval by the IMF’s board.

"Completion of this review would make available SDR 1,432.76 million (about US$2 billion), bringing total disbursements under the programme to about US$12 billion," the statement read.

An IMF delegation visited Egypt on 5 to 16 May to conduct the review.

The Egyptian authorities have been successful in achieving macroeconomic stabilisation, a recovery in growth and an improvement in the business climate following the adaptation of the reform programme from three years ago, the review found.

"GDP growth accelerated from 4.2 percent in 2016/17 to 5.3 percent in 2017/18; unemployment declined from 12 percent to below 9 percent; and the current account deficit narrowed from 5.6 percent of GDP to 2.4 percent,” the statement read.

Gross general government debt is expected to decline according to its estimates to about 85 percent of GDP in 2018/19 from 103 percent of GDP in 2016/17. 

"International reserves increased from $17 billion in June 2016 to $44 billion in March 2019," it said.

As a result, Egypt has become more resilient to "the elevated uncertainty in the external environment." 

The mission commended the Egyptian government for implementing a social protection package which "was critical in garnering broad public support for difficult reforms" adding that the reduction in "regressive and inefficient fuel subsidies" provided the financial means for that package.

The statement listed pension increases and targeted initiatives like Takafol and Karama, Forsa, Sakan Karim and Mastura to help the vulnerable as examples of the social protection package.  

"The measured increases in public sector wages and progressive tax credits have benefited the middle class," according to the statement, and efforts are ongoing to further improve targeting and expand the coverage of the social safety net.

The IMF mission noted that the Central Bank of Egypt has modernised its monetary policy framework, focusing on inflation as its primary objective under a flexible exchange rate regime.

"Its monetary policy stance has been appropriately calibrated, helping to reduce inflation from 33 percent in July 2017 to 13 percent in April 2019 despite occasional supply-side shocks and excessive volatility in some food prices," it said.

The CBE aims to reduce inflation to single digits in the medium term, the statement said.

Addressing food supply bottlenecks by investing in logistics, storage facilities, and transport infrastructure, and reducing non-tariff trade barriers are important measures that could reduce this volatility.

"The CBE’s commitment to exchange rate flexibility ensures that that the Egyptian pound reflects economic fundamentals, protects international reserves, and enhances the economy’s resilience to external shocks," read the statement.

Egypt is on track to achieve its three-year fiscal consolidation objective of 5.5 percent of GDP in the primary balance.

"The primary surplus target of 2 percent of GDP in 2018/19 is within reach, and the authorities intend to maintain this level in the medium term to keep general government debt on a steadily declining trajectory," it said.

Regarding the fuel subsidy reform, the mission said that it was nearing successful completion.

"It will be a significant accomplishment,” having created space for spending on better targeted social programmes.

The main priorities include raising tax revenues for much-needed spending on health, education and social programmes, according to the mission.

"We welcome the authorities’ plans to preserve the fiscal consolidation gains achieved during the programme, further strengthen the capacity for debt and fiscal risk management, improve spending efficiency, and enhance the transparency and accountability of public finances," it said.

It also added the objective of structural reforms is to generate higher and more inclusive growth and create jobs for Egypt’s young and growing population.

"Steady progress is being made in implementing measures that aim to increase productivity, remove barriers to investment and trade, improve governance and reduce the role of the state in the economy.”

Key reform areas cited included improving access to finance, improving industrial land allocation, enhancing competition, strengthening transparency and management of state-owned enterprises, and fighting corruption. 

The mission also welcomes the authorities’ strong commitment to maintaining the reform momentum beyond the loan programme, which expires in November.


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