On Monday the Executive Board of the International Monetary Fund (IMF) completed the fourth review of Egypt’s economic reform programme supported by a $8 billion Extended Fund Facility. The approval enables Egypt to receive a $1.2 billion tranche of the loan.
The IMF board also approved the Egyptian government’s request for an arrangement under the Resilience and Sustainability Facility (RSF) with access of about $1.3 billion. The facility aims to provide affordable long-term finance to support policy reform and help countries tackle longer-term challenges such as climate change and pandemics. The funds from the facility will be disbursed in tranches and not as a lump sum. A press conference, originally scheduled for Tuesday 3pm Cairo time, was delayed due to technical issues and no further details were available before Al-Ahram Weekly went to press.
The latest approval has taken longer than usual. The staff level agreement on the fourth review was reached in December 2024.
According to Khaled Sakr, a former IMF mission chief and assistant director, the delay was a result of the IMF needing time to look at the data and have a full discussion with the Egyptian authorities after the government requested that the pace of fiscal consolidation be moderated to protect social spending and minimise short-term negative impacts on growth. “The government was able to convince the IMF team of the desirability of these modifications, especially given that the trajectory of debt reduction remains ambitious,” he says.
The government’s request for modifications to the agreement followed statements made by President Abdel-Fattah Al-Sisi in October signalling that Egypt would have no choice but to review its programme with the IMF if it meant placing unbearable pressures on the public, especially given that the reforms are taking place amid challenging regional and global circumstance. The fallout from the war in Gaza has heavily impacted the Egyptian economy. Revenues from the Suez Canal, a major source of hard currency, declined by more than 60 per cent in 2024 compared to 2023, falling by around $7 billion.
The new RSF funding should provide further support for the economy. The IMF does not earmark disbursements, explains Sakr. Instead, the money goes to the treasury and can be used for different outlays as long as the overall picture is consistent with the objectives of the IMF arrangement.
That the fund not only approved the fourth review but augmented it with a new RSF arrangement sends “a very strong positive signal to international markets that will support government efforts to replace some of its maturing short-term debt with longer-term debt,” says Sakr.
Egypt’s external debt stood at around $155 billion in September 2024. Egypt needs to recycle some of its maturing foreign debt because it cannot afford to pay it all in the short run. However, he noted, it needs to ensure the new debt has a longer maturity to reduce the remaining debt service burden.
The Ministry of Finance has had some success in doing this, he said, when it recently issued Eurobonds with five- and eight-year maturities to replace short-term debt.
Sakr suggests the creation of an independent entity, a “public debt management board”, to oversee the process. Such entities are common in many countries and can be placed under the auspices of the Ministry of Finance, the prime minister or even the president. The board can then play an important role in coordinating public borrowing to make sure it is consistent with what is affordable and with the gestation period of the projects it is financing.
The board would be responsible for striking a better balance in terms of the distribution of maturities and the sources of borrowing, says Sakr. Accountable to parliament and/or the president, it could build on recent decisions to introduce debt ceilings and require state entities to obtain prior approval before borrowing or issuing guarantees.
Though the fourth review is out of the way, plenty of work awaits the government. In line with its commitments to the IMF, as it goes forward Egypt must ensure it maintains a flexible exchange rate and adheres to the stipulations outlined in the agreement, says Sherif Fahmy, CEO of public advisory firm NGage Group. This includes adjustments to energy and fuel prices which are expected to have a direct impact on inflation.
In October the prime minister said that there will be no fuel hikes until March to ease the burden on citizens. The government raised fuel prices three times in 2024. While fuel price increases are likely to result in short-term inflationary pressures, Fahmy notes that the government’s existing protection programmes are designed to mitigate these effects and support vulnerable populations. This month the government started rolling out LE85 billion worth of new social support measures.
The Egyptian economy has come a long way since it devalued its currency a year ago and renewed its agreement with the IMF. Key macroeconomic indicators have shown notable improvement, signalling a gradual recovery, says Mariam Diab, senior economist at NGage Consulting. Easing inflationary pressures — inflation fell from 35.2 per cent in December 2023 to 12.5 per cent in February 2024 — alongside strengthening international reserves are fostering a more favourable economic environment, which is reflected in optimistic growth projections.
The IMF anticipates a growth rate of 3.6 per cent in the current fiscal year, with expectations of an increase to 4.1 per cent for fiscal year 2025-26.
“Despite prevailing geopolitical tensions and their adverse effects, particularly on the Suez Canal’s operations, the economy is on a path towards stabilisation and growth,” says Diab. Foreign currency inflows have also improved in the wake of the Ras Al-Hekma deal, she adds, reflecting renewed investor confidence which has been encouraged by the government’s commitment to reform efforts, such as maintaining a flexible exchange rate regime. This has also impacted positively on remittances. Earlier this month, the CBE announced that remittances grew by 51.3 per cent in 2024 to reach around $29.6 billion compared to $19.5 billion in 2023.
“While challenges remain, the overall trajectory is one of recovery,” concludes Diab.
Fahmy recommends speeding up the implementation of investment incentives stipulated in the Investment Law and of the State Ownership Policy and diversifying the national export portfolio to enhance the country’s economic resilience and foster a more dynamic environment for growth. He points out that the State Ownership Policy could have advanced more swiftly in the last four years.
The IMF has highlighted the importance of accelerating initiatives aimed at reducing the state’s economic footprint in order to create an enabling environment that encourages private sector participation and aligns with the goal of achieving private sector-led growth, says Fahmy. While the government’s announcement of multiple initial public offerings of state-owned enterprises indicates a positive direction, and is welcome as such, any impact will depend on timely and comprehensive follow through.
* A version of this article appears in print in the 13 March, 2025 edition of Al-Ahram Weekly
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