IMF, Egypt reach agreement on 3-year $12bn extended fund facility

CBE's aim to move to flexible exchange rate will strengthen competitiveness, says head of IMF mission

The Egyptian government , the Central Bank of Egypt (CBE), and the International Monetary Fund (IMF) reached a staff-level agreement on a three-year extended fund facility (EFF) of SDR 8.5966bn (equivalent to about $12bn), according to Chris Jarvis, head of the IMF mission to Cairo.
SDR is an international reserve asset that is used by the IMF that can be exchanged for usable currency.
Jarvis said that the agreement is subject to approval by the IMF's executive board, which is expected to consider Egypt's request in the coming weeks.
Based on the preliminary findings of the IMF mission, the staff will prepare a report that, after obtaining management approval, will be presented to the IMF's executive board for discussion and reaching a final decision.
Jarvis added that Egypt is a strong country with great potential, but it is suffering from some problems that need to be urgently fixed. The EFF supports Egypt's comprehensive economic reform programme, as stated in the government plan approved by the parliament.
Jarvis noted that the government recognises the need for quick implementation of economic reforms in Egypt to restore macroeconomic stability and to support strong, sustainable, and job-rich growth.
Jarvis revealed that the program aims to improve the functioning of the foreign exchange markets, bring down the budget deficit and government debt, and to raise growth and create jobs, especially for women and young people. It also aims to strengthen the social safety net to protect the vulnerable during the process of adjustment.
"The government's fiscal policy will be anchored to placing public debt on a clearly declining path toward more sustainable levels. Over the program period, general government debt is expected to decline from about 98% in 2015/2016 to about 88% of [the gross domestic product] in 2018/2019," Jarvis said.
"The aim is to raise revenue and rationalise spending, to reduce the deficit, and to free up public funds for high-priority spending, such as infrastructure, health, education, and social protection. As indicated in the budget approved by the parliament, the government will adopt the [value-added tax] law after approval by the parliament, and will continue the program begun in 2014 to rationalise energy subsidies," he added.
The head of the IMF mission pointed out that the CBE monetary and exchange rate policy will aim to improve the functioning of the foreign exchange market, increase foreign reserves, and bring down inflation to single digits during the program.
Additionally, moving to a flexible exchange rate will strengthen competitiveness, support exports and tourism, and attract foreign direct investment. This would foster growth and jobs, and reduce financing needs.
Regarding the financial sector policy, Jarvis said that it will be geared towards safeguarding the strength and stability of the banking system. Moreover, public financial management and fiscal transparency will be strengthened to improve governance and delivery of public services, enhance accountability in policymaking, and combat corruption.
He announced that structural reforms will aim at improving the business environment, deepening labor markets, simplifying regulations, and promoting competition. The ambition is to significantly improve Egypt's ratings in doing business and global competitiveness.
"With the implementation of the government reform program, together with the help of Egypt's friends, the Egyptian economy will return to its full potential. This will help achieve inclusive job-rich growth and raise living standards for the Egyptian people," he said. "We at the IMF are ready to partner with Egypt in this program. We will also encourage other multilateral agencies and countries to support Egypt. We have talked to our colleagues in the World Bank and the African Development Bank and they are willing to help. It would also be very helpful for Egypt's bilateral partners to step forward at this critical time."
An IMF mission visited Cairo from July 30 to August 11, 2016 to discuss support for the authorities' economic reform program through IMF financial assistance.