Riyadh: The International Monetary Fund approved the payment of about 820 million dollars to Egypt after completing the third review of the country's extended agreement.
In March, the International Monetary Fund approved an 8 billion dollar support program after the Gaza crisis negatively affected the North African country's economy. This slowed tourism and cut Suez Canal revenue in half due to Yemeni attacks on Red Sea shipping.
The deal was made under the Extended Fund Facility, a program designed to help countries with serious medium-term balance-of-payments problems caused by structural issues that will take time to resolve. The 46-month EFF Egypt arrangement was approved on December 16, 2022.
Egypt has made significant progress in its efforts to stabilize the economy. While inflation remains high, it is gradually easing and a flexible exchange rate regime remains at the center of the program, the International Monetary Fund said in a statement.
Since the first and second surveys in March, Egypt has seen an improvement in macroeconomic conditions. The lack of currency has been resolved and the financial goals, including those related to infrastructure costs, have been met.
“These developments are beginning to have a positive impact on investor confidence and private sector sentiment,” the IMF added.
Maintaining a flexible exchange rate and currency liberalization system is necessary to prevent external imbalances, while a data-driven central bank approach is necessary to further reduce inflation.
The fund said continued fiscal consolidation would help manage public debt, while efforts to boost domestic revenue and curb fiscal risks from the energy sector would secure resources.
These measures are essential for the necessary spending on health and education, creating financial space for increased social spending to support vulnerable groups.
“While progress has been made on some critical structural reforms, more efforts are needed to implement the state ownership policy,” the statement added.
Increasing the flexibility 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 toward private sector-led growth that creates jobs and opportunities for all.
Ahmed Kojak, Egypt's finance minister, said that the approval of the third review in the framework of the economic reform program by the International Monetary Fund is a vote of confidence in the government's program, which includes reforms and financial and economic goals.
He added that this message is also a reassuring message that reflects the ability of the Egyptian economy to increase stability.
Antoinette Sayeh, the deputy managing director and head of the International Monetary Fund, said that reforms bring positive results by equalizing exchange rates and tightening monetary policies, reducing speculation and moderating price growth.
Sayeh added: It is expected that the policy adjustments will help maintain macroeconomic stability. A continuous shift to a flexible exchange rate regime and a liberalized currency system, continued implementation of a tight monetary policy, and further fiscal consolidation along with the proper implementation of the public investment monitoring and control framework should support domestic and external balance.
He said that allocating part of the financial resources of the Ras al-Hikmah transaction to the accumulation of reserves and debt reduction will create more cushion against shocks.
In February, a private consortium led by ADQ, an Abu Dhabi-based sovereign wealth fund, signed a deal with Egypt to invest $35 billion in Ras al-Hikamah, a Mediterranean coastal region 350 kilometers northwest of Cairo. This is 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 revenue, improving debt management, and using devolved resources to reduce debt allow for more productive spending, including targeted social spending.
Returning energy prices to cost recovery levels by December 2025 is essential for reliable energy supply and sector balance. Strengthening the governance of state-owned banks, advancing the state ownership policy, increasing financial transparency, and smoothing the economic playing field are critical to attracting private investment.
“The risks are still significant,” said Sayeh. Regional conflicts and uncertainty about the duration of trade disruptions in the Red Sea are important sources of external risk.
He added: “Maintaining appropriate macroeconomic policies, including a flexible exchange rate regime, will help ensure economic stability.
“Meaningful progress with the structural reform program will significantly improve the growth outlook. Sayeh said: Prudent management of the resumption of capital inflows will also be important to curb potential inflationary pressures and limit the risk of future external pressures.
In a video press conference, an International Monetary Fund official said Egypt will undergo a fourth review from mid-September to December 2024 and, if successful, will receive $1.3 billion. This official added: It is expected that Egypt's inflation will reach below 15% by the end of June.
The International Monetary Fund also emphasized that the Egyptian authorities are committed to divest public assets to strengthen the role of the private sector in the economy.
The International Monetary Fund forecast Egypt's real GDP growth of 4 percent in the 2024/25 fiscal year, and said negotiations will continue for the country to access flexible and sustainable facilities that would provide countries with affordable long-term financing. . Make adjustments to reduce risks
