RIYADH: The International Monetary Fund has approved the disbursement of about $820 million to Egypt following the completion of the third review of the country's extended regime.
The IMF approved an expanded $8 billion support program for the African country in March after the Gaza crisis negatively affected its economy. This slowed tourism and the Suez Canal revenues were cut in half due to attacks on Red Sea shipping from Yemen.
The agreement was made under the Extended Fund Facility, designed to help countries with severe medium-term balance of payments problems that need time to address structural problems. Egypt's 46-month EFF regime was approved on December 16, 2022.
According to the international organization, Egypt has made significant progress in efforts to stabilize the economy. Although inflation is high, it is decreasing gradually. A flexible exchange rate regime remains central to the program, the IMF said in a press release.
Since the joint first and second reviews in March, Egypt has seen an improvement in macroeconomic conditions. Inflation has come down, foreign exchange shortages have been resolved, and fiscal targets, including infrastructure spending, have been met.
“These reforms are beginning to have a positive impact on investor confidence and private sector sentiment,” the IMF added.
Maintaining a flexible exchange rate and a liberal foreign exchange regime is essential to prevent external imbalances, while a data-driven approach by the central bank is needed to further reduce inflation.
The fund said that continuous financial strengthening will help in managing public debt, while efforts to strengthen internal revenue and control financial risks from the energy sector will ensure that resources are available. These measures are necessary for necessary spending on health and education, to create fiscal space to increase social spending to support vulnerable groups.
“Although progress has been made in some important structural reforms, more efforts are needed to implement the state's ownership policy,” said the press release.
Increasing the flexibility of the financial sector, improving governance practices, and increasing competition in the banking sector should be top priorities, as all of these are needed to advance a private sector-led Egypt that creates jobs and opportunities.
Egyptian Finance Minister Ahmed Kozak said the IMF's approval for a third review within the framework of the economic reform program is a vote of confidence in the government's program, which includes fiscal and economic reforms and targets.
He added that it serves as a reassuring message that reflects Egypt's ability to increase the stability of the economy.
IMF Deputy Managing Director and Acting President Antoine M. Sayeh said the reforms were yielding positive results through exchange rate integration and tightening of monetary policy, reducing speculation and moderating inflation.
Seh said: “Policy settings are expected to help maintain macroeconomic stability. Further fiscal consolidation with a flexible exchange rate regime and a sustained transition to a liberal foreign exchange regime, continued implementation of tight monetary policy and proper implementation of the framework for monitoring and controlling public investment, both domestic and external Balance should be supported.
He added that a portion of the financing from the Ras El-Hekma agreement would provide additional cushion against shocks by earmarking reserves and debt reduction.
In February, a private consortium led by ADQ, an Abu Dhabi-based sovereign investment fund, signed a deal with Egypt to invest $35 billion in Ras el-Hekma, a Mediterranean coastal region 350 kilometers northwest of Cairo. This is the largest single foreign direct investment in Egypt's history.
Looking ahead, the IMF official said implementing the structural reform agenda is crucial for inclusive and sustainable development. Increasing tax revenue, improving debt management and leveraging disinvestment resources for debt reduction 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 provision and sector balance. Strengthening the governance of state-owned banks, advancing state ownership policies, enhancing financial transparency and leveling the economic playing field are essential to attract private investment.
“Risks remain significant. Uncertainty about the duration of regional conflicts and trade disruptions in the Red Sea are important sources of external risk,” Sayeh said.
She added: “Maintaining appropriate macroeconomic policies, including a flexible exchange rate regime, will help ensure economic stability. Proceeding meaningfully with the structural reform program will significantly improve growth prospects. Careful management of flow resumption will also be important.
