Press Release No. 22/274

IMF Executive Board Discusses the Ex-Post Evaluation of Egypt’s Exceptional Access Under the 2020 Stand-By Arrangement

July 26, 2022

Washington, DC : The Executive Board of the International Monetary Fund (IMF) met today to discuss the Ex-Post Evaluation (EPE) of Egypt’s Exceptional Access Under the 2020 Stand-By Arrangement.

The IMF’s financial support to the Egyptian authorities’ policy response to the COVID-19 pandemic in 2020 included exceptional access to Fund resources, leading to an EPE of the 2020 Stand-By Arrangement (SBA) that was approved by the Executive Board on June 26, 2020 ( Press release No. 20/248 ). The EPE assess whether program objectives under the 12‑months arrangement were achieved, whether the macroeconomic strategy, program design, and financing were appropriate to address the challenges Egypt faced at the time, and whether the program was consistent with Fund policies.

In early 2020, the Egyptian authorities launched a broad policy response to address the immediate and severe economic disruption caused by the COVID-19 pandemic, which threatened to reverse Egypt’s hard-won achievements in regaining macroeconomic stability. A central element of the authorities’ response to the crisis was a request for financial assistance from the IMF in April 2020 under the Rapid Financing Instrument (RFI) ( Press Release No. 20/215 ) followed by an SBA. The overarching goal of Fund support was to maintain macroeconomic stability amid the crisis, allowing for the easing of fiscal, monetary, and financial policies to support the crisis response and for thus achieving health and social policy objectives during the pandemic. The SBA aimed at safeguarding medium-term fiscal sustainability and at keeping the momentum in selected structural reform areas, mostly building on initiatives that began during the 2016-19 Extended Fund Facility (EFF).

The report finds that the SBA achieved its primary objective of maintaining macroeconomic stability and that policy implementation was broadly in line with program objectives, even as exchange rate variability remained limited. External and domestic confidence strengthened, and quantitative program targets were comfortably achieved. Both reviews of the SBA were concluded on time and all program conditionality was met. While some of the governance commitments regarding COVID-19 related expenditures have been implemented, others remain outstanding. The focused structural reform agenda supported by the SBA was fully executed. Going forward, decisive progress on deeper reforms is needed to foster private sector development, improve governance and reduce the role of the state. Fund policies and procedures for financing under exceptional access were followed. The SBA expired on June 25, 2021.

Executive Board Assessment [1]

Executive Directors welcomed the Ex-Post Evaluation (EPE) of Egypt’s exceptional access to Fund resources under the 2020 Stand-By Arrangement (SBA). They considered that the two-step approach—Egypt’s request for emergency financing under the Rapid Financing Instrument (RFI) followed by the SBA—was an example of agile Fund support to its members during the COVID-19 pandemic.

Directors agreed that the SBA achieved its primary objective of maintaining macroeconomic stability in Egypt amidst the severe disruptions caused by the pandemic. They noted that policies were eased to accommodate emergency spending on health and social protection, while preserving fiscal sustainability. Directors welcomed that all program conditionality was met and both reviews were completed on time.

Directors observed that a better-than-expected external environment combined with policy implementation under the arrangement strengthened domestic and external confidence. They concurred that conservative macroeconomic projections, the authorities’ commitment to fiscal discipline, and a well-focused structural reform agenda were important factors for the successful conclusion of the SBA.

Directors agreed that policy implementation under the SBA was broadly in line with program objectives. However, while noting the authorities’ objective to bolster confidence through a broadly stable exchange rate, they considered that greater exchange rate variability during the SBA could have been entrenched to avoid a buildup of external imbalances and facilitate adjustment to shocks. In this regard, Directors welcomed the authorities’ recent communications on the role of exchange rate flexibility in the policy toolkit.

In hindsight, Directors noted that the program design could have better captured upside risks as they materialized. Furthermore, they saw the benefits of a broader definition of FX reserve targets and a more comprehensive discussion of burden sharing. Directors found the structural conditionality of the SBA appropriate given its short duration and in view of its primary objective to maintain macroeconomic stability. While noting the trade-offs implied by a program of short duration, on balance, they agreed that a short duration SBA was the appropriate choice in view of prevailing uncertainties at the time. Directors called on the authorities to meet the governance commitments of COVID-19 related expenditures.

Directors concurred with the findings of the EPE that the authorities demonstrated a strong track record of implementation of Fund programs. They also agreed that the SBA was conducted in a manner consistent with Fund policies and procedures and welcomed the stringent application of the Exceptional Access Framework and risk management procedures.

Looking ahead, Directors noted Egypt’s remaining vulnerability from a high public debt burden and large gross financing requirements, and emphasized that decisive progress on deeper fiscal and structural reforms is needed to boost the economy’s competitiveness, improve governance, and strengthen its resilience against shocks. They noted that this EPE should inform the ongoing discussions on the Fund’s future engagement with Egypt.