The IMF said in a statement that there will be an immediate disbursement of about $347 million to help meet the country’s balance of payment needs and provide support to its budget.
The tranche is significantly smaller than the $750 million Egypt hoped to receive.
Over the course of the program, the EFF is expected to catalyse additional financing of about $14 billion from Egypt’s international and regional partners, up from the $5 billion in FY2022/23 that the IMF had predicted in October.
These funds would include new financing from GCC countries and other partners through the ongoing divestment of state-owned assets as well as traditional forms of financing from multilateral and bilateral creditors, according to the statement.
The new IMF-backed economic reform programme for Egypt envisages the implementation of a comprehensive policy package to preserve the country’s macroeconomic stability, restore buffers, and pave the way for sustainable, inclusive, and private-sector-led growth, the IMF said.
The programme includes the following package of measures: 1) a permanent shift to a flexible exchange rate regime, 2) monetary policy aimed at gradually reducing inflation in line with the central bank’s targets together with strengthening policy transmission, including by transitioning away from subsidising lending schemes, 3) fiscal consolidation and debt management to ensure downward trajectory in public-debt-to-GDP and contain gross financing needs, while increasing social spending and strengthening social safety net to protect the vulnerable, and managing national investment projects in a manner consistent with external sustainability and economic stability, 4) wide-ranging structural reforms to reduce the state footprint, level the playing field across all economic agents, facilitate private-sector-led growth, and strengthen governance and transparency in the public sector.
“The authorities’ recent commitment to a durable shift to a flexible exchange rate regime and to unwind prior policy distortions, supported by an upfront monetary policy tightening and further enhancements to the social safety net, are welcome steps,” said the IMF’s Managing Director and Chairman of the Board Kristalina Georgieva.
Egypt has also requested another loan under the Resilience and Sustainability Facility (RSF), which could provide up to an additional $1.3 billion to support climate-related policy goals.
“The authorities’ economic program supported by the 46-month EFF arrangement provides a credible policy package to reduce imbalances, maintain macroeconomic stability, restore buffers and improve resilience against shocks, and pave the way for private-sector-led growth. A permanent shift to a flexible exchange rate regime will help mitigate external shocks and prevent imbalances from re-emerging and allow monetary policy to focus on maintaining price stability,” Georgieva said.
“Fiscal consolidation will ensure medium-term debt sustainability, while expansion of social spending will help alleviate poverty and protect the vulnerable. Structural reforms will reduce the state footprint and level the playing field between the public and private sector, strengthen private-sector-led growth, and enhance governance and transparency. The EFF will fill part of the financing gap with implementation of the underlying policy package unlocking substantial additional financing from Egypt’s partners, including financing in the form of investments,” Georgieva explained.
“Given the heightened uncertainty and risks to the global economic outlook, the authorities’ commitment to stay the course on exchange rate flexibility, prudent macroeconomic policies, and structural reforms is critical. Their strong ownership and track record under previous Fund-supported programs and political support for the policy package are important risk mitigating factors to achieving the objectives of the Fund-supported program,” Georgieva said.
The IMF deal is the 12th since Egypt became a member of the Fund in 1945, and is the fourth Egypt has secured since the implementation of its first wave of economic reforms (November 2016-July 2019), the second under the EFF, and the third since the onset of the war in Ukraine.
In October, the IMF revised up its projections for Egypt’s real GDP growth in 2022 to 6.6 percent, up from 5.9 percent it had expected in July, yet lowered it for 2023 to 4.4 percent, down from 4.8 percent, according the Fund’s World Economic Outlook report.
The Fund also raised the country’s expected inflation to 13.1 percent in 2022, up from 8.7 percent it predicted in April, while decreasing its projections in 2023 to 9.2 percent, down from 14 percent.
The Monetary Policy Committee of the Central Bank of Egypt (CBE) is anticipated to convene on Thursday for the last time in 2022 to review the key interest rates amid the ongoing global economic updates and in light of the new IMF deal measures.
Since the spark of the Russian-Ukrainian conflict, the CBE has hiked the interest rates by a total of 5 percent (500 bps) and has devaluated the Egyptian pound against the US dollar by over 55 percent.