In December 2022, the International Monetary Fund (IMF) Executive Board approved a 46-month arrangement within the EEF worth about $3 billion for Egypt to address the country’s macroeconomy imbalances. Then later, in March 2024, the loan was extended to $8 billion due to Egypt facing increasing regional geopolitical tensions.

The points covered by the third review are the following. 

Commitments Egypt has successfully abided by
 

●      Macroeconomic conditions have improved since the first and second IMF reviews in March.

●      Inflationary pressures are gradually decreasing, as Egypt’s annual headline and core inflation rates have been on a downward trend for four consecutive months (March-June). The last reading in June showed that the annual inflation rate slowed to 27.1 percent compared to 31.8 percent in April, according to the Central Agency for Public Mobilization and Statistics (CAPMAS).  

●      Foreign exchange shortages have been eliminated.

●      Fiscal targets, including those related to spending by large infrastructure projects, have been achieved.

●      These improvements have a positive effect on investor confidence and private-sector sentiment.

●      Aligning the exchange rate with the implementation of stricter monetary policies has reduced speculation, attracted foreign investments, and slowed down price increases.

Commitments Egypt still has to work on
 

●      Egypt will have to work further on adopting a flexible exchange rate regime and a liberalized foreign exchange system to avoid the buildup of external imbalances.

●      The Central Bank of Egypt (CBE) should adopt a data-driven approach to lower inflation and inflation expectations. It currently sets its inflation target at only 7 percent (±2 percent) in the fourth quarter of 2024.

●      Egypt also needs to focus more on strengthening domestic revenue mobilization, containing fiscal risks from the energy sector, and expanding social programmes, particularly regarding health and education. This will help generate some fiscal space to expand social spending for vulnerable groups.

●      It also needs to work harder on implementing the State Ownership Policy, released by the government in December 2022. This policy identifies the state's presence in the economic sectors and aims to expand the private sector's participation in public investments. This includes accelerating the divestment programme, pursuing reforms to streamline business regulations to set up new firms, expediting trade facilitation practices, and creating a “level playing field” that avoids unfair competitive practices by state-owned companies.

●      Enhancing the stability of the financial sector and improving governance practices and competition within the banking sector should be key priorities since they are vital for guiding Egypt toward growth driven by the private sector, which can create job opportunities for all.

●      Bringing energy prices, including retail fuel prices, back to cost recovery levels by December 2025 is crucial for ensuring a reliable energy supply to the population and reducing disparities in the sector. An effort towards this has been recently made, as fuel prices were increased by around 10-15 percent last week.

Key challenges and risks
 

●      Regional geopolitical tensions remain high amid the Gaza conflict.

●      Tensions also remain high in the Red Sea, where attacks on crossing ships have prompted several shipping companies to divert their ships to the Cape of Good Hope route, instead of through the Suez Canal. This caused revenues from the Suez Canal to decline to $7.2 billion during FY2023/2024 from $9.4 billion in FY2022/2023.