Press Release No. 16/375

Egypt: IMF Reaches Staff-Level Agreement on a Three-Year US$12 Billion Extended Fund Facility

August 11, 2016

• Staff-level agreement is subject to approval by IMF’s Executive Board, which is expected to consider the request in coming weeks.
• EFF supports the authorities’ comprehensive economic reform program as approved by the parliament.
• Program aims to improve the functioning of the foreign exchange markets, bring down budget deficit and debt, and raise growth. It also includes strengthening the social safety net to protect the poor and vulnerable groups. Social protection is a cornerstone in the program.

In response to a request from the Egyptian authorities, an International Monetary Fund (IMF) mission led by Mr. Chris Jarvis visited Cairo from July 30 to August 11, 2016 to discuss support for the authorities’ economic reform program through IMF financial assistance. At the end of the visit, Mr. Jarvis issued the following statement:

“I am pleased to announce that, in support of the government’s economic reform program, the Egyptian government, the Central Bank of Egypt (CBE) and the IMF team have reached a staff-level agreement on a three-year Extended Fund Facility (EFF) in the amount of SDR 8.5966 billion (422 percent of quota or about US$12 billion). This agreement is subject to approval by the IMF’s Executive Board, which is expected to consider Egypt’s request in the coming weeks.

“Egypt is a strong country with great potential but it has some problems that need to be fixed urgently. The EFF supports the authorities’ comprehensive economic reform program as stated in the government plan approved by the parliament. The government recognizes the need for quick implementation of economic reforms for Egypt to restore macroeconomic stability and to support strong, sustainable and job-rich growth. 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 15/16 to about 88% of GDP in 2018/19. The aim is to raise revenue and rationalize spending, to reduce the deficit and to free up public funds for high-priority spending, such as infrastructure, health and education, and social protection. As indicated in the budget approved by the parliament, the government will adopt the VAT law after approval by the parliament, and will continue the program begun in 2014 to rationalize energy subsidies. It will advance the structural reform agenda to help increase investment and strengthen the role of the private sector

“Social protection is a cornerstone in the government’s reform program. Budgetary savings that come from other measures will be partially spent on social protection: including specifically food subsidies and targeted social transfers. The social protection measures will preserve or increase support for insurance and medicine for the poor, subsidies for infant milk and medicine for children, health insurance for young children and female primary providers, and vocational training for youth. The government will also develop a plan to enhance the school meals program. Priority will also be given to investment in public infrastructure.

“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. Moving to a flexible exchange rate regime will strengthen competitiveness, support exports and tourism and attract foreign direct investment. This would foster growth and jobs and reduce financing needs.

“Financial sector policies will be geared toward safeguarding the strength and stability of the banking system.

“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. In this context, the reform measures being implemented target creating a competitive business environment, attracting investment and increasing productivity to provide fertile ground for private sector activity.

“Public financial management and fiscal transparency will be strengthened to improve governance and delivery of public services, enhance accountability in policymaking, and combat corruption.

“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. 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.

“The mission would like to thank the authorities and all those with whom they met for their warm welcome and the frank and constructive discussions.”