The IMF Finishes Visit to Egypt and Moves Closer to Completing 4th Review of $8B Loan Program
The International Monetary Fund (IMF) finished its visit to Egypt on Wednesday. It noted progress as it gets closer to completing the fourth review of the $8 billion loan program under the extended fund facility (EFF).
Reforms Under EFF
- From November 6 to 20, an IMF team led by Ivanna Vladkova Hollar visited Egypt to review its economic program and discuss new reforms, especially to address climate risks. This was part of Egypt’s request to use the Resilience and Sustainability Facility (RSF).
- During the visit, the IMF held in-person talks with Egyptian officials about important policy issues, long-term challenges, and possible reforms, according to a statement released on Thursday.
- The IMF praised Egypt for taking steps to improve its economy, like unifying its exchange rate, which has cleared a backlog of foreign currency demand and reduced imports.
- The IMF also said Egypt’s monetary policies have helped control inflation, although the results have been slower recently due to higher administrative costs.
- Lastly, the IMF noted that strict budget policies have helped lower public debt risks, but Egypt still needs to work on increasing local revenues, managing financial risks, and strengthening its social safety net.
Developing the Private Sector
An IMF official highlighted that developing the private sector is essential for boosting future economic growth, maintaining stability, and creating jobs. They also pointed out that Egypt’s plans to simplify taxes, improve customs processes, and make trade easier would be very helpful.
Both the IMF and Egypt’s government agreed that tax reforms are crucial. These reforms would increase government income, support important programs in health, education, and social welfare, and lower the country’s debt and the cost of managing it.
They also stressed the importance of strengthening social safety programs to protect vulnerable people from the rising cost of living and higher energy prices.
The IMF suggested that Egypt should speed up selling state-owned assets and move faster on reforms to reduce the government’s role in the economy.
Controlling Inflation
Hollar emphasized that Egypt needs to keep reducing inflation until it reaches a target of 5% by the end of 2026.
In October, the annual inflation rate for urban consumers rose slightly to 26.5%, up from 26.4% in September. This marks the third month in a row that inflation has increased, mainly due to higher fuel prices.
Last month, Egypt increased fuel prices by an average of 9.2%, the third hike this year, as part of efforts to cut subsidies and reduce financial pressure.
To manage inflation, the Central Bank of Egypt (CBE) kept interest rates steady in October. The overnight deposit rate stayed at 27.25%, the overnight lending rate at 28.25%, and the main operation rate at 27.75%.
Important Quote
“The economic outlook for Egypt and the region remains tough due to ongoing geopolitical tensions,” said Hollar.
He explained that the conflicts in Gaza and Israel, along with trade disruptions in the Red Sea, have caused a sharp drop—up to 70%—in revenue from the Suez Canal, a major source of foreign currency for Egypt.
Background
In March 2024, the IMF reviewed Egypt’s economic program and approved an extra $5 billion, giving Egypt immediate access to $820 million. In July, another $820 million was released after a third review.
Egypt’s 46-month program, started in December 2022, aims to cut subsidies on fuel, electricity, and other items while letting the currency move freely.
The IMF said talks are ongoing to finalize policies and reforms needed for the fourth review, which will release the next portion of the $8 billion loan.
Published: 21th November 2024
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