File photo: The seal for the International Monetary Fund (IMF) in Washington, DC. AFP
Accordingly, the fund’s executive board is expected to discuss the review's results based on the virtual and in-person discussions the IMF mission held with the Egyptian side to complete it.
Once approved, Egypt will be eligible to receive a tranche of around $1.2 billion.
An IMF mission led by Ivanna Vladkova Hollar conducted in-person discussions with Egyptian authorities from 6 to 20 November, followed by virtual meetings.
“The Egyptian authorities have continued to implement key policies to preserve macroeconomic stability, despite ongoing regional tensions that are causing a sharp decline in Suez Canal receipts,” said Hollar.
Maintaining macroeconomic stability
In her statement, Hollar emphasized the Egyptian authorities' commitment to maintaining macroeconomic stability despite regional tensions that have led to a notable decline in Suez Canal receipts.
"The continued implementation of key policies is essential in navigating these challenging times," she stated.
According to Hollar, the Egyptian authorities have requested to recalibrate their medium-term fiscal commitments due to difficult external conditions and a challenging domestic economic environment.
Primary balance surplus
She added that the primary balance surplus, excluding divestment proceeds, is expected to reach four percent of GDP in FY2025/2026, which starts on 1 July 2025. This is 0.5 percent lower than earlier commitments and is projected to rise to five percent of GDP in FY2026/2027, in line with the original targets.
Hollar explained that this recalibration aims to create fiscal space for enhancing critical social programmes that support vulnerable groups and the middle class while ensuring debt sustainability.
Fiscal consolidation for debt sustainability
Moreover, Hollar noted that the IMF underscored the necessity of ongoing fiscal consolidation to maintain debt sustainability and reduce high-interest costs and domestic financing requirements.
She stressed that the government must also address fiscal risks associated with state-owned enterprises (SOEs) in the energy sector and strictly adhere to public investment ceilings.
Simplifying tax system
Hollar highlighted the need for further reforms to bolster domestic revenue mobilization efforts while acknowledging the Egyptian authorities' plans to streamline and simplify the tax system.
She indicated that the Egyptian authorities committed to a reform package that aims to increase tax-to-GDP revenue by two percent over the next two years. The package focuses on eliminating tax exemptions rather than raising rates.
Enhancing business environment
According to Hollar, both the IMF staff and Egyptian authorities agreed that accelerating reforms to enhance the business environment and position the private sector as the main driver of growth is urgent.
This includes levelling the playing field, reducing state involvement in the economy, and building private sector confidence to attract foreign investment and unlock Egypt’s economic potential.
She also stated that despite facing challenges from the external environment, there was consensus on the need to expedite the divestment programme, which is crucial for supporting private sector development and alleviating the high debt burden.
Keeping monetary policy flexibility
Per the IMF statement, the Central Bank of Egypt (CBE) reiterated its commitment to maintaining a flexible exchange rate regime to shield the economy from external shocks.
The CBE also aims to sustain tight monetary conditions to further mitigate inflationary pressures. It is working towards modernizing its operations and gradually transitioning to a full-fledged inflation-targeting regime.
Strengthening financial sector resilience and improving governance and competition within the banking sector are also identified as key priorities for the future.
The CBE’s Monetary Policy Committee (MPC) is scheduled to convene on Thursday to review the key interest rates in the final meeting for 2024 amid expectations that the central bank would keep the current levels unchanged amid the inflation backpedalling trend.
According to the fund's World Economic Outlook report released in October, the IMF expected Egypt's GDP to recover to 4.1 percent in FY2025/2026, up from a forecasted 2.7 percent in FY2024/2025.
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