The Executive Board of the International Monetary Fund (IMF) announced on Saturday the completion of the first review of Egypt’s economic reform programme supported by a 12-month Stand-By Arrangement (SBA) facility.
Under the first review, Egypt will receive $1.67 billion as a second tranche of the loan, bringing the total disbursements under the SBA to $3.6 billion.
Egypt received the first $2 billion tranche in June as an immediate disbursement.
The IMF’s Executive Board approved Egypt’s request to acquire the SBA loan in June worth a total of $5.2 billion (184.8 percent of its quota) to support the authorities’ economic reform programme during the COVID-19 crisis.
Following the Executive Board’s discussion on Egypt, Antoinette Sayeh, deputy managing director and acting chair, stated “the Egyptian authorities have managed well the COVID-19 pandemic and the related disruption to economic activity. The proactive measures taken to address health and social needs and to support the sectors most directly affected by the crisis have helped mitigate the economic and human impact."
The statement continued:"The growth slowdown has so far been less severe than expected with Egypt expected to be among the few countries with positive growth rate this year. External market conditions have also improved with a strong return of portfolio inflows.”
Sayeh added that the are still risks to the outlook particularly as a second wave of the pandemic increases uncertainty about the pace of domestic and global recovery.
The high level of public debt and gross financing needs also leave Egypt vulnerable to volatility in global financial conditions. Continued strong policy implementation will further strengthen resilience and help maintain investors' confidence, according to Sayeh.
“Budget execution is on track to achieve the programmer's target for FY 2020/2021. The existing budget envelope provides sufficient flexibility to accommodate any additional support for vulnerable groups in the event of a second wave of COVID-19, while maintaining the programme’s fiscal objectives. The envisaged economic recovery should allow public debt to resume its downward trajectory from FY 2021/22, and the continued shift towards longer-term debt issuance could mitigate rollover risks. Continued progress on fiscal structural reforms is critical to ensure additional space for high priority spending on health, education, and social protection,” according to Sayeh.
Sayeh added that the Central Bank of Egypt’s (CBE) monetary policy has been instrumental to anchor inflation expectations and achieve low and stable inflation.
But she noted that the CBE’s monetary easing in recent months should further support economic activity and ease appreciation pressures resulted from large capital inflows, which affected the inflation deeply, asserting that two-sided exchange rate flexibility is essential to absorb external shocks and keep competitiveness.
“The banking system has been resilient thus far, having entered the crisis well-capitalised and with ample liquidity. The CBE’s initiatives have helped ensure continued access to credit through the crisis; ongoing financial sector supervision will be critical to maintain the resilience of the banking sector as crisis initiatives begin to expire,”, Sayeh stated.
She also said that Egypt’s structural reform agenda is appropriately ambitious, yet sustained progress on structural and governance reforms is essential to foster higher, greener, and more inclusive private sector-led growth.
Sayeh added that the IMF has welcomed the government’s ongoing initiatives to support a green recovery, but continued focus on reforms to boost the transparency of state-owned enterprises and to facilitate trade is needed.
A timely finalisation of a restructuring plan for the National Investment Bank is important for reducing fiscal risks and ensuring a level playing field for all economic agents. Removing bureaucratic obstacles to private sector development will lead to durable improvements in the investment climate and governance, according to Sayeh.
In its latest update on the Middle East and Central Asia (MCD) region economic outlook in October, the IMF announced that Egypt is the only country in the region that will witness positive real GDP growth, expected at 3.5 percent, in 2020.