The International Monetary Fund (IMF) released its report on the findings of the third review of the Extended Fund Facility (EFF) loan programme on Monday, which was signed in 2022.

It showed less stringent demands being made of the Egyptian authorities, as seen by extensions to the deadlines to deliver certain reforms. The new approach is being attributed to positive economic developments on many levels, including increases in Egypt’s international currency reserves and decreasing inflation rates.

The IMF increased the value of the deal from the $3 billion agreed upon in December 2022 to $8 billion in March in response to an Egyptian Government request. It came after the first and second reviews of the reforms were delayed, as were the disbursements of the loan tranches, as the economy was muddling through a foreign-exchange crisis and runaway inflation.

The requirement of ensuring the timely publication of the Central Auditing Organisation’s (CAO) annual reports on the fiscal accounts by the end of March 2024 was delayed until the end of November. The authorities are currently amending the legislation governing the CAO and plan to include this requirement in a related law rather than implement it through a decree.

Meanwhile, the demand to prepare a recapitalisation plan for the Central Bank of Egypt (CBE) was postponed and will now be delivered at the end of August instead of the previously agreed on deadline in April.

The IMF also hinted that quarterly adjustments of fuel prices made through Egypt’s indexation mechanism are not required on condition that fuel will be sold at a cost-recovery level by December 2025.

In July, Prime Minister Mostafa Madbouli announced the Government’s intention to apply a gradual increase to the pricing of petroleum products in order to reach a break-even point for fuel subsidies by December 2025.

In addition to these modifications, the IMF maintained its recommendation that a plan be drawn up to reduce CBE loans to public-sector bodies, excluding the Ministry of Finance. The authorities had committed to reducing the claims by LE150 billion by the end of July and to further reduce CBE claims by a total of LE100 billion every fiscal year until they are reduced to zero.

The IMF said in its report that the EFF-supported programme has begun to yield positive results for the Egyptian economy. It said that Egypt had met the requirement on net international reserves (NIRs) by a significant margin as they had been boosted by an increase in non-resident inflows into local currency treasury bills in March 2024.

Egypt’s NIRs reached an all-time high in July, hitting $46.3 billion, according to the CBE’s latest figures.

“The unification of the exchange rate together with the accompanying monetary policy tightening have curtailed speculation, brought in foreign inflows, and moderated price growth, with inflation falling in March, April, and May and reaching its lowest level since January 2023,” the IMF report said.

The CBE devalued the Egyptian pound against the US dollar in March, allowing the pound to lose over 60 per cent of its value.

Egypt’s inflation has kept to a downward path over the past four months, reaching 25.2 per cent for headline inflation and 24.4 per cent for core inflation in July. Despite this drop, Egypt’s overall inflation rate is still well beyond the target the CBE set at seven per cent (±2 per cent) in the fourth quarter of 2024.

The IMF report noted that private-sector growth is poised for a rebound, even if available data still point to weakness in activity. Egypt’s position on the S&P Global Purchasing Managers’ Index (PMI) for the non-oil sector has been tiptoeing around the 50 mark for the past few months, with July recording 49.7 and down from 49.9 in June.

The report said that current monetary policy, a cornerstone of the programme, is appropriate.

“Following hikes in key policy rates by a cumulative 800 basis points (bps) in the first quarter of 2024, the current monetary stance remains appropriate to place inflation on a declining trend. A tight monetary policy will remain necessary to ensure a sustained decline in underlying inflation,” the report concluded.

* A version of this article appears in print in the 29 August, 2024 edition of Al-Ahram Weekly