The fund announced late July that it has completed the third review of the programme, which was raised in amount from $3 billion to $8 billion in March in response to the Egyptian government request to address the implications of the global and regional geopolitical tensions on the country’s economy.

Hereunder is a brief of the major takeaways from the report:

Suez Canal amid tensions
 

Affected by the regional and geopolitical unrest, Suez Canal revenues deposited at the Central Bank of Egypt (CBE) shrank by 57 percent (Y-o-Y) in the first quarter (1Q) of 2024, according to the report.

As a result, Egypt’s current account deficit is projected to widen, driven by the decline in Suez Canal receipts that are estimated at 60 percent (Y-o-Y) amid disruptions to navigation in the Red Sea.

Balance of Payments (BoP)
 

Despite the decline in the Suez Canal indices, the report expected the overall BoP to turn positive thanks to the inflows from the $35 billion Ras El-Hekma deal and the treasury bills (T-bills) held by nonresidents.

These inflows will provide a significant push to the financial account.

FX rate
 

The report pointed out that official FX rate has remained relatively stable after the FX rates unification applied by the CBE in March.

“While additional FX inflows due to the Ras El-Hekma deal and nonresident investors brought appreciation pressures, the underlying depreciation pressures remained due to high inflation and an increase in FX demand associated with the FX backlog clearance at banks," said the report.

It also expected that the monetary policy hike applied by the CBE in March, along with the huge reduction in monetary financing by the government, will help contain the inflationary wave over the coming months.

Egypt’s inflation will remain high in the short term but will decline to an avarege of 21.2 percent in the current FY2024/2025 and to keep its downward trend till reaching 10.2 percent in FY2026/2027 when the government’s programme concludes. This projection is well beyond the CBE’s target for the end of 2024 set at seven percent (±2 percent).

Budget primary surplus
 

Egypt targets a primary surplus of 3.5 percent in the current FY2024/2025, which ends on 30 June 2025, boosted by the proceeds of the government's divestment plan.

“To reach this target, the budget envisages an increase in overall revenues of one percent of GDP, with increases in tax revenues and other non-tax revenues by 0.7 and 0.3 percent of GDP, respectively. The increase in tax revenues will be supported by a combination of tax policy and revenue administration measures. Primary expenditure will be reduced by 0.5 percent of GDP compared with the estimated outturn for FY2023/2024, but social benefits to vulnerable households will be protected," noted the report.

Moreover, the Ministry of Finance will secure one percent of GDP in divestment proceeds to reduce public debt.

Meanwhile, the report noted, the environment for divestment has improved due to further clarity around the authorities’ policy direction, particularly in FY2024/2025, including more certainty for foreign investors in terms of their ability access foreign exchange to repatriate dividends.

Yet, the report warned, the uncertain geopolitical situation in the region and tight global financing could weaken investor interest.

Ras El-Hekma deal
 

The report revealed that Egypt will acquire 25 percent interest in the profits generated by the Ras El-Hekma for Urban Development Project Company, which was established to be the regulator for the project’s development.

The authorities have not received the development plan for the region from the UAE’s ADQ, expecting it will take a year to complete.

“Preliminary information shared by the authorities suggests that the investment could reach $150 billion over a period of 20–30 years. The authorities suggested that investment in the region could be about $3-4 billion annually, mostly in the form of FDI and domestic private investments. The authorities noted that most of the basic infrastructure already exists in the region. Development is expected to take place without any public sector guarantees to support private sector investment," the report underpinned.

Fuel prices
 

The report noted that several structural benchmarks under the third review were not met, which pushed the IMF’s staff to rephase two, modify one, and not reset two. This included modifying the benchmark on the quarterly implementation of the retail fuel price indexation mechanism as a firm commitment to restore fuel prices to their cost recovery levels by December 2025.

In this respect, the report asserted, the continued reduction of fuel subsidies will create a room for high-quality social support measures.

Mobilizing resources
 

According to the report, the Egyptian government is considering a group of options to mobilize domestic resources including:

- Adopting a carbon tax to support emissions reduction in light of the implementation of the European Union’s (EU) Carbon Border Adjustment Mechanism.

- Withholding taxes on sales from freezones in Egypt to the domestic market.

Repaying the fund
 

As per the report, Egypt’s capacity to repay the fund is adequate but subject to risks, full program implementation, and the materialization of all projected financing.

Egypt is the fund’s second largest exposure in the General Resources Account.

Egypt’s stock of gross and net international reserves exceeds its obligations to the fund and provides a buffer for repayments.