Press Release No. 20/346

Egypt: IMF Staff Reaches Staff-Level Agreement on the First Review for the 12-Month Stand-by Arrangement

November 19, 2020

• Egypt’s economy has performed better than expected despite the pandemic, thanks to a swift, balanced and comprehensive stimulus package, monetary policy response, targeted financial sector initiatives, and a timely financing request from the IMF’s Rapid Financing Facility and Stand-by Arrangement of nearly $8 billion.
• While domestic activity shows early signs of recovery and financial market conditions have improved, key sectors like tourism remain at an almost standstill and risks linger particularly amid a second global wave of COVID-19 infections.
• Continued strong program implementation, including sustained progress in key structural reforms, is vital to build resilience. This will also ensure that investors remain confident in the outlook for Egypt.

Washington, DC: An International Monetary Fund (IMF) team led by Ms. Uma Ramakrishnan held a virtual mission from November 4 to 15, 2020 with the Egyptian authorities to discuss recent economic developments and policy priorities of the first review for Egypt’s economic program supported by the IMF’s 12-month Stand-by Arrangement. At the end of the discussions, Ms. Ramakrishnan issued the following statement:

“The IMF staff team and the Egyptian authorities have reached a staff-level agreement on the first review of Egypt’s economic program supported by the IMF’s $5.2 billion Stand-by Arrangement ( press release. 20/248 ). 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.

“The Egyptian economy has performed better than expected despite the pandemic. Containment measures, supported by the authorities’ effective crisis management, and strong implementation of their policy program helped mitigate the effects of the crisis. After recording a growth rate of 3.6 percent in FY2019/20, growth is projected to reach 2.8 percent in FY2020/21, with a modest recovery in all sectors except tourism, as the pandemic continues to disrupt international travel. Pandemic-related risks still exist in light of the second global wave of COVID-19 cases.

“The authorities’ commitment and strong performance helped meet all program targets for end-September 2020. Net international reserve accumulation and the primary balance exceeded the program targets. Subdued inflation in September (3.7 percent)—primarily reflecting lower food prices—triggered the monetary policy consultation clause. The updated financial information of state-owned enterprises (SOEs) and Economic Authorities was published in September. Additionally, the customs law to streamline the customs procedures was passed ahead of schedule.

“The Central Bank of Egypt’s (CBE) monetary policy remains appropriately accommodative. In this regard, we welcome the CBE’s recent interest rate cuts to further support economic recovery amid muted inflation. The exchange rate has modestly appreciated in the wake of an increase in capital inflows. Continued exchange rate flexibility will help absorb external shocks. Egypt's banking system remains liquid, profitable, and well capitalized.

“Egypt’s fiscal policy in FY2020/21 remains appropriately focused on supporting the immediate priorities in health, protecting the most vulnerable, and supporting sectors affected by the pandemic, and remains on track to achieve a primary surplus of 0.5 percent of GDP. The government’s commitment to returning to a primary surplus of 2 percent of GDP as the economic recovery becomes entrenched will be essential to reduce public debt and support fiscal sustainability. The recent publication of contracts awarded for COVID-19-related spending is a welcome step towards increasing transparency and the team encourages continued updates to these publications.

“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.”