Press Release No. 18/405

IMF Team Reaches Staff-Level Agreement on the Fourth Review for Egypt’s Extended Fund Facility

October 31, 2018

• As a result of the authorities’ strong implementation of the reform program. GDP growth accelerated from 4.2 percent in 2016/17 to 5.3 percent in 2017/18.
• The government also remains committed to continuing energy subsidy reforms and raising revenues which will help create fiscal savings to invest in a well targeted social safety net, human development including health and education, and infrastructure
• Improving access to industrial land, promoting competition, improving transparency and accountability of state owned enterprises, and fighting corruption, will help the private sector growth and create jobs for Egypt’s young and growing population.

An International Monetary Fund (IMF) team led by Mr. Subir Lall visited Egypt on October 18-31, 2018 to conduct the fourth review of Egypt’s economic reform program supported by a three-year Extended Fund Facility (see Press Release No. 16/501). At the end of the visit Mr. Lall issued the following statement:

“The IMF staff team and the Egyptian authorities have reached a staff-level agreement on the fourth review of Egypt’s economic reform program, which is supported by the IMF’s SDR 8.597 billion (about $12 billion) Extended Fund Facility arrangement. The staff-level agreement is subject to approval by the IMF’s Executive Board. Completion of this review would make available SDR 1,432.76 million (about US$2 billion), bringing total disbursements under the program to about US$10 billion.

“The Egyptian economy has continued to perform well, despite less favorable global conditions, supported by the authorities’ strong implementation of the reform program. GDP growth accelerated from 4.2 percent in 2016/17 to 5.3 percent in 2017/18 while unemployment declined to below 10 percent. Meanwhile, the current account deficit narrowed to 2.4 percent of GDP in 2017/18 from 5.6 percent the year before, primarily driven by strong remittances and a recovery in tourism. Gross general government debt declined from 103 percent of GDP in 2016/17 to about 93 percent of GDP in 2017/18, supported by fiscal consolidation and higher growth.

“The Central Bank of Egypt’s (CBE) prudent monetary policy helped bring down annual inflation from 33 percent in July 2017 to 11.4 percent in May 2018. However, inflation increased again to about 16 percent in September 2018, reflecting the pass-through from energy price increases in June and a stronger than expected increase in volatile food prices in September. In the medium term, the CBE aims to reduce inflation to single digits. Meanwhile, in the current external environment of tighter financing conditions for emerging markets, the CBE’s commitment to a flexible exchange rate policy will help enhance competitiveness, protect Egypt’s foreign reserves, and cushion against external shocks. Egypt's banking system remains liquid, profitable, and well capitalized.

“Egypt’s fiscal policy in 2018/19 and beyond will continue to aim at keeping general government debt on a clearly declining path and achieving a primary surplus of 2 percent of GDP. The government also remains committed to continuing energy subsidy reforms and raising revenues which will help create fiscal savings to invest in a well targeted social safety net, human development including health and education, and infrastructure. To improve fiscal transparency and public access to information, the authorities have continued to expand the data disseminated on the budget process and execution throughout the year.

“We welcome the authorities’ comprehensive efforts to improve the living standards of the most vulnerable. These efforts include: Takafol and Karama, which has expanded to cover around 10 million individuals; Forsa, which has created job opportunities for graduates of the Takafol program; and, Mastoura, which provides microfinancing to women for sustainable income generation. These programs are being complemented with the Sakan Karim program to provide clean drinking water and sanitation to rural areas. Moreover, a social package consisting of an additional increase in the salaries of public servants, an increase in pensions, and a progressive increase in tax credits has been implemented.

“The government continues to make efforts to implement reforms that aim to help the private sector invest and create the jobs needed to achieve more inclusive and sustainable growth for Egypt’s young and growing population. These reforms include: improving access to industrial land; promoting competition; improving transparency and accountability of state owned enterprises; and fighting corruption.

“The team would like to thank the Egyptian authorities and the technical teams in the CBE and the Ministry of Finance, and other interlocutors, for their openness, candid discussions, and hospitality.”