Egypt has unlocked a $2.5 billion loan from the IMF after completing a review of its economic reforms. The total funds drawn under the extended fund facility now amount to over $3.2 billion. The IMF has acknowledged improvements in fiscal balance and growth, despite challenges such as external shocks and inflation. Ongoing reforms are necessary to ensure economic resilience and stability moving forward.
Egypt has successfully unlocked an additional $2.5 billion loan from the International Monetary Fund (IMF) following the completion of a critical review of its economic reform efforts. The IMF has finalized the fourth review of Egypt’s economic reform program, which is under an extended fund facility arrangement approved on December 16, 2022. Consequently, this achievement allows Egypt to draw approximately $1.2 billion immediately, raising total withdrawals to approximately $3.207 billion, constituting 119 percent of its quota.
Moreover, the IMF has granted approval for an arrangement under the Resilience and Sustainability Facility (RSF), providing Egypt with access to about $1.3 billion. The completion of the 2025 Article IV consultation underlines the authorities’ commitment to maintaining macroeconomic stability, despite external pressures resulting in a notable drop in Suez Canal revenues. Growth in Egypt experienced a decline to 2.4 percent in FY2023/24 from 3.8 percent in the preceding fiscal year, although it rebounded to around 3.5 percent year-on-year in the current fiscal year’s first quarter.
Notably, headline inflation in Egypt has decreased since September 2023, although the current account deficit expanded to 5.4 percent of GDP. Conversely, the primary fiscal balance has improved by one percentage point to 2.5 percent of GDP, mainly attributed to stringent expenditure controls countering domestic revenue shortfalls. The IMF has acknowledged and approved a recalibration of Egypt’s medium-term fiscal commitments to adapt to prevailing external and domestic economic challenges.
Looking ahead, while the primary balance surplus is projected to reach 4 percent of GDP next fiscal year, progress towards fiscal consolidation thus far in FY2024/25 has not met initial targets. The authorities are implementing measures to curb spending to align with the fiscal goals. The external economic environment remains challenging due to ongoing regional conflicts and disruptions in trade along the Red Sea, leading to significant losses in Suez Canal revenues estimated at $6 billion in 2024. However, remittances and tourism receipts have remained resilient.
The introduction of a flexible exchange rate regime in March 2024 has yielded positive results, with a closing gap between the official and parallel rates and increased trading activity in the interbank market, albeit with limited fluctuations. The IMF has emphasized the need for ongoing vigilance to firmly establish the perceived stability of the flexible exchange rate.
The implementation of structural reforms has shown mixed results, with delays observed in critical areas such as divestment and competition enhancement. Nonetheless, the authorities have exhibited decisive action, especially regarding the operational independence of the Egyptian Competition Authority and governance improvements in public banking sectors. The RSF arrangement aims to facilitate essential reforms addressing climate change and strengthening environmental risk management.
In concluding discussions, Mr. Nigel Clarke, Deputy Managing Director and Chair of the IMF, highlighted the notable strides made since March 2024 in economic stabilization and market confidence, notwithstanding the adverse external environment marked by conflicts. He acknowledged that while GDP growth shows recovery, significant medium-term fiscal challenges persist, owing to high debt levels and limited structural reform progress, which hinder private sector growth.
For fiscal sustainability, it is crucial to enhance domestic revenue mobilization and adopt a comprehensive debt management strategy. The IMF reiterated that fostering resilience and dynamic growth necessitates a significant transition in Egypt’s economic model, emphasizing the need for reforms, competitive frameworks, and addressing governance issues. Lastly, while climate reforms critical for adaptation continue, risk factors affecting the economic outlook remain concerning, illustrating the need for careful navigation of both domestic and external challenges to secure fiscal and economic stability.
In conclusion, Egypt has successfully negotiated a $2.5 billion loan from the IMF, reflecting progress in its economic reforms amidst challenging conditions. Despite setbacks in growth and fiscal consolidation, the recognition of fiscal improvements and continued resilience in remittances and tourism offers a hopeful outlook. Nevertheless, significant challenges remain, necessitating ongoing reform efforts to boost sustainability and economic stability in the face of external pressures and regional conflicts.
Original Source: dmarketforces.com
