Egypt responded to the coronavirus crisis with a timely and prudent fiscal monetary easing that helped mitigate the pandemic’s health and social repercussions, the International Monetary Fund’s (IMF) executive board said in its review of Egypt’s reform programme that was released on Thursday.
In doing so, Egypt has managed to safeguard its economic stability, debt sustainability, and investor confidence.
The report is the IMF's second and final review of Egypt’s economic reform programme that was supported by a 12-month Stand-by Arrangement (SBA).
Last month, the IMF announced the completion of Egypt’s $5.2 billion SBA loan and the completion of the second and final review of the programme, paving the way for the country to receive the third tranche of the $1.6 billion loan.
The fund commended Egypt’s strong performance under the SBA in the review.
“It is a result of timely policy response to the crisis and steadfast implementation of the programme with overperformance in key programme targets,” read the statement on the review.
“The Egyptian authorities have managed well the economic and social impact of the COVID-19 pandemic. Proactive economic policies shielded the economy from the full brunt of the crisis, alleviating the health and social impact of the shock, while maintaining macroeconomic stability and investor confidence," the statement added.
However, “high public debt and large gross financing needs leave Egypt vulnerable to shocks or changes in financial market conditions for emerging markets," the fund stated.
The review praised the budget target for FY 2021/22 as Egypt strikes an appropriate balance between supporting the recovery and keeping public debt on the projected path.
“The envisaged pickup in growth should allow a return to the pre-crisis primary surplus from FY 2022/23 to put public debt back on a firmly downward trajectory,” the statement read.
Continued progress on fiscal structural reforms was critical to ensure additional space for high-priority spending on health, education, and social protection, it added.
The statement praised the role of the Central Bank of Egypt and how its data-driven approach to monetary policy has helped anchor inflation expectations.
“The banking system remains resilient, having entered the crisis well-capitalised and with ample liquidity.
“The authorities’ national structural reform plan aims to achieve strong private sector-led growth to create durable employment and improve external resilience," the IMF said in its statement, adding that to achieve those goals this will require sustained efforts to improve resource allocation by reducing the role of the state in the economy as well as enhancing governance and transparency.
After receiving the IMF’s executive board approval in June 2020, Egypt received the first tranche of $2 billion as an immediate disbursement and the second $1.6 billion tranche in January following the approval of the first review of the programme.
The programme’s main objectives included helping Egypt cope with the challenges posed by the coronavirus by meeting the country’s balance of payment needs, reducing the budget deficit, maintaining the achievements made over the past four years under the country’s economic reform programme, and providing finances for implementing Egypt’s second wave of economic reforms.
The SBA loan has helped Egypt replenish its international reserves that were severely hit by the pandemic, declining to $36 billion in March, down from $45.5 billion by the end of February 2020.
In May 2020, Egypt filed for another loan under the rapid finance instrument worth $2.7 billion to counter the repercussions of the pandemic. It received the sum in a one-off tranche.