The first is the launch of the government's new budget, which targets faster economic growth, lower public debt, and a stronger fiscal position while maintaining spending on social protection and development priorities.
The second is the staff-level agreement reached between the International Monetary Fund (IMF) and the Egyptian authorities on the seventh review of the country's $8 billion Extended Fund Facility (EFF) and the second review of the Resilience and Sustainability Facility (RSF). The agreement marks an important milestone but does not constitute final approval. It must still be considered by the IMF Executive Board before any new financing can be disbursed.
What happened?
On Wednesday, IMF staff announced they had reached a staff-level agreement with the Egyptian authorities after completing discussions in Cairo.
A staff-level agreement means IMF staff believe Egypt has made sufficient progress on the programme and recommend that the review proceed to the Executive Board. It does not constitute final approval and does not automatically release funds.
If approved by the IMF Executive Board, Egypt would gain access to around $1.5 billion under the EFF and approximately $136 million under the RSF, bringing total disbursements under the two programmes to about $7.2 billion.
Why does the 7th review matter?
The IMF programme has become one of the main anchors of Egypt's economic reform agenda since it was expanded from $3 billion to $8 billion in March 2024.
Each review assesses whether Egypt is meeting agreed quantitative targets, such as fiscal balances and reserve levels, while also evaluating structural reforms, including reducing the state's role in the economy, improving governance, and encouraging greater private-sector participation.
Unlike earlier reviews, the latest assessment comes as Egypt's economy has largely stabilized after the severe foreign currency shortages and inflation surge of 2023-24. However, policymakers continue to face external pressures, including regional geopolitical tensions and lower revenues from the Suez Canal.
What did the IMF say about Egypt's economy?
The IMF described Egypt's recent macroeconomic performance as broadly resilient despite external shocks.
The fund said the following:
- Real GDP growth reached five percent in the third quarter of FY2025/2026, bringing growth during the first nine months of the fiscal year to 5.2 percent.
- Egypt exceeded its primary balance and tax revenue targets by the end of March, supported by stronger domestic revenue collection and expenditure discipline.
- Foreign exchange reserves remained broadly stable, while renewed portfolio inflows helped support the exchange rate following earlier market pressures.
At the same time, the IMF cautioned that inflation remains elevated.
Urban headline inflation stood at 14.6 percent in May, and the fund expects it to rise to around 15.8 percent by the end of FY2025/26, partly reflecting recent energy price adjustments and regional uncertainties.
The IMF said monetary policy should therefore remain sufficiently tight, while exchange-rate flexibility should continue serving as the economy's first line of defence against external shocks.
What reforms does the IMF want next?
Although fiscal performance has been stronger than expected, the IMF said the next stage of reforms should focus more heavily on structural changes.
Among its priorities are accelerating implementation of the State Ownership Policy, speeding up divestment of state-owned assets, creating a more level playing field between public and private companies, enhancing competition, and strengthening the business environment to encourage private investment and job creation.
These reforms have become increasingly important as the IMF seeks to shift Egypt's growth model toward greater private-sector leadership.
How does the new FY26/27 budget fit into the IMF programme?
The government's new budget, which takes effect on Wednesday, largely reflects the fiscal direction endorsed by the IMF.
According to the Ministry of Finance, the budget targets the following:
- 5.4 percent real GDP growth,
- Average inflation of about 9.3 percent,
- An overall fiscal deficit of 4.9 percent of GDP,
- Primary surplus of 5 percent of GDP,
- Continued reduction in the public debt-to-GDP ratio,
- Increased allocations for health, education, and social protection while maintaining fiscal discipline.
The government's target for a five percent primary surplus matches the IMF's latest projections.
A primary surplus measures the government's budget balance before interest payments on debt. Maintaining a high primary surplus is considered essential for reducing Egypt's public debt burden over time.
The budget also assumes continued improvements in tax revenues through expanding the tax base and improving tax administration rather than introducing broad-based tax increases, an approach that the IMF welcomed in its latest assessment.
What are the biggest challenges?
Despite improving macroeconomic indicators, several challenges remain, according to the IMF.
Inflation continues to erode household purchasing power, while geopolitical tensions continue to affect major sources of foreign currency, particularly Suez Canal revenues.
The government also faces the difficult task of reducing debt while maintaining adequate spending on social protection, infrastructure, and public services.
Meanwhile, progress on structural reforms, particularly state asset sales and expanding the role of the private sector, will remain closely watched ahead of future IMF reviews.
What happens next?
The IMF staff-level agreement now moves to the IMF Executive Board, which will decide whether to approve the seventh review. Only after the board's approval would Egypt receive the next tranche of financing under the programme.
For the government, the new fiscal year therefore begins with a broadly positive signal from the IMF, but also with clear expectations: maintain fiscal discipline, continue structural reforms, and deliver the ambitious economic targets set out in the FY2026/2027 budget.
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