The International Monetary Fund (IMF) announced on Tuesday the completion of Egypt's stand-by agreement (SBA) programme, which paves the way for Egypt to receive the third tranche of the programme's loan with an amount of $1.6 billion. The IMF said that its team led by Celine Allard held a virtual mission from 4 to 24 May 2021 with the Egyptian authorities.
The mission held discussions on the 2021 Article IV Consultation with Egypt and the second review of Egypt's economic program supported by the IMF's 12-month SBA.
"The IMF staff team and the Egyptian authorities have reached a staff-level agreement on the second review of Egypt's economic program supported by the IMF's $5.2 billion Stand-by Arrangement . This agreement is subject to approval by the IMF's Executive Board, which will take place in the coming weeks. Upon approval, an additional SDR 1.16 billion (about US$1.6 billion) will be made available to Egypt," Allard explained.
She added that Egyptian authorities' strong performance and commitment helped achieve the program's objectives of maintaining macroeconomic stability during the pandemic over the past year while protecting necessary social and health spending and implementing key structural reforms.
Egypt's net international reserve accumulation and the primary balance exceeded the program targets, according to Allard.
She also mentioned that the country's inflation continued to be subdued with March outturn (4.5 percent) breaching the lower inner bound of the monetary policy consultation clause.
All structural benchmarks were met including further advancing reforms related to fiscal transparency and governance, social protection, and improvement in the business environment, while continuing efforts directed towards reducing debt vulnerabilities and creating more budget space for priority spending, according to Allard.
"The publication of information related to COVID-19 crisis-related spending, procurement plan, and beneficial ownership of awarded entities is a welcome step towards further enhancing transparency," said Allard.
"Supported by the authorities' strong implementation of their policy program, the economy has shown resilience. Growth is expected to be 2.8 percent in FY2020/21, rising to 5.2 percent in FY2021/22. However, uncertainty remains against the backdrop of lingering pandemic-related risks. Policies are appropriately focused on supporting the recovery in the near term while deepening and broadening structural reforms to unleash Egypt's enormous growth potential in the medium term," Allard expounded.
On the Central Bank of Egypt's (CBE) monetary policy, Allard said that it remains data dependent, adding that the IMF welcomes the CBE's readiness to act as necessary to support economic recovery amid muted inflation.
She added that continued exchange rate flexibility in both directions will help absorb external shocks. Egypt's banking system remains liquid, profitable, and well capitalized.
On Egypt's fiscal policy side, Allard said that in the coming FY2021/2022 appropriately targets a gradual consolidation to balance needed support for the economic recovery while safeguarding fiscal sustainability.
She added that the continued shift towards higher investments in infrastructure, health, and education in the next fiscal year is also welcomed by the IMF.
"The government's commitment to returning to a primary surplus of 2 percent of GDP starting in FY2022/23 and as the economic recovery becomes entrenched will be essential to reduce public debt and support fiscal sustainability," Allard pointed out.
For Egypt's recent National Structural Reform Program (NSRP), Allard said that it is a signal of the government's commitment to fostering human capital development, more efficient and transparent public institutions, a more competitive and export-oriented private sector, and a greener economy.
Yet, she noted that it will be important for the government in the coming months to further define specific policy measures to support these objectives, including to allow more space for the private sector to operate in a competitive environment, and to encourage exports through further reducing trade impediments.
"The team would like to thank the Egyptian authorities and the technical teams at the CBE and the Ministry of Finance, and other interlocutors for the constructive and candid discussions," Allard said.
