IMF Approves $820M Payments to Egypt After Third Review of Extended Fund Facility
RIYADH: The International Monetary Fund has approved the payment of approximately $820 million to Egypt following the completion of the third review of the country's expanded agreement.
The IMF approved an expanded $8 billion support program for the African country in March after the Gaza crisis hit its economy. This slowed tourism and halved Suez Canal revenues due to Yemeni attacks on shipping in the Red Sea.
The agreement was made under the Extended Fund, a program designed to help countries with serious medium-term balance of payments problems resulting from structural problems that take time to resolve. Egypt's 46-month EPF arrangement was approved on 16 December 2022.
According to the international organization, Egypt has made notable progress in its efforts to stabilize the economy. While inflation remains high, it is gradually falling. A flexible exchange rate regime remains central to the program, the IMF said in a press release.
Since the first and second combined assessments in March, Egypt has seen improvements in macroeconomic conditions. Inflation is easing, foreign exchange deficits have been resolved, and fiscal targets, including those related to infrastructure spending, have been met.
“These improvements are starting to have a positive effect on investor confidence and private sector sentiment,” the IMF added.
Maintaining a flexible exchange rate and a liberalized currency system is essential to prevent external imbalances, while the central bank's data-driven approach is needed to further reduce inflation.
The fund said continued fiscal consolidation will help manage public debt, while efforts to strengthen domestic revenues and limit fiscal risks in the energy sector will ensure resource availability. These aids are needed for essential spending on health and education, creating fiscal space for increased social spending to support vulnerable groups.
“Although progress has been made on some critical structural reforms, greater efforts are needed to implement the State Property Policy,” the press release added.
Increasing the resilience of the financial sector, improving governance practices and increasing competition in the banking sector should be key priorities, as these are essential to move Egypt towards private-sector-led growth that creates jobs and opportunities for all.
IMF Deputy Managing Director and Acting President Antoinette M. Sayeh said the reforms are yielding positive results, unifying the exchange rate and tightening monetary policy, reducing speculation and moderating price increases.
Sayeh said: “The policy settings are expected to help maintain macroeconomic stability. A sustained transition to a flexible exchange rate regime and a liberalized exchange rate system, the continued implementation of a tight monetary policy and further fiscal consolidation, together with the appropriate implementation of the public investment monitoring and control framework, should support the internal and external balance. “
She added that allocating part of the funding from the Ras El-Hekma deal to build reserves and reduce debt provides an additional cushion against shocks.
In February, a private consortium led by ADQ, an Abu Dhabi-based sovereign wealth fund, signed an agreement with Egypt to invest $35 billion in Ras El-Hekma, a Mediterranean coastal region 350 km north -west of Cairo. This marks the largest foreign direct investment in Egypt's history.
Looking ahead, the IMF official said the implementation of the structural reform agenda is crucial for inclusive and sustainable growth. Increasing tax revenues, improving debt management and using divestment resources to reduce debt will allow for more productive spending, including targeted social spending.
Restoring energy prices to cost recovery levels by December 2025 is essential for reliable energy supply and sectoral balance. Improving the governance of state-owned banks, promoting state ownership policy, increasing fiscal transparency and leveling the economic playing field are vital to attracting private investment.
“Risks remain significant. Regional conflicts and uncertainty over the duration of trade disruption in the Red Sea are important sources of external risk,” Sayeh said.
She added: “Maintaining appropriate macroeconomic policies, including a flexible exchange rate regime, would help ensure economic stability. Significant progress in the structural reform program would significantly improve growth prospects. Prudent management of the resumption of capital inflows will also be important to contain potential inflationary pressures and limit the risk of future external pressures.”
