Press Release No. 24/500

IMF Reaches Staff Level Agreement on the Fourth Review of the Extended Fund Facility with Egypt

December 24, 2024

• IMF staff and the Egyptian authorities have reached staff-level agreement on the fourth review under the Extended Fund Facility (EFF) arrangement. Subject to approval by the Executive Board, Egypt will have access to about $1.2 billion (SDR 922.87 million).
• In light of the difficult external conditions and challenging domestic economic environment, IMF staff and the Egyptian authorities agreed to recalibrate the fiscal consolidation path to create fiscal space for critical social programs benefiting vulnerable groups and the middle class, while ensuring debt sustainability.
• Looking forward, reform priorities comprise boosting domestic revenues, improving the business environment, accelerating divestment, and leveling the playing field while enhancing governance and transparency.

“We are pleased to announce that the Egyptian authorities and the IMF have reached staff level agreement on the fourth review under the Extended Fund Facility (EFF) arrangement. Subject to approval by the Executive Board, Egypt will have access to about $1.2 billion (SDR 922.87 million).

“The Egyptian authorities have continued to implement key policies to preserve macroeconomic stability, despite ongoing regional tensions that are causing a sharp decline in Suez Canal receipts.[1]

“In light of the difficult external conditions, as well as a challenging domestic economic environment, the authorities requested a recalibration of their medium-term fiscal commitments. In this regard, the primary balance surplus (excluding divestment proceeds) is expected to reach 4 percent of GDP next fiscal year (FY 2025/26) (½ percent of GDP less than earlier program commitments) and then increase to 5 percent of GDP in FY 2026/27 (in line with earlier commitments). This short-term recalibration seeks to ensure that fiscal consolidation provides some space to increase critical social programs in support of vulnerable groups and the middle class while ensuring debt sustainability.

“The continued implementation of fiscal consolidation efforts will be necessary to preserve debt sustainability, and reduce large interest costs and gross domestic financing requirements. Particular attention will be needed to contain fiscal risks stemming from SOEs in the energy sector, and to enforce the strict implementation of the public investment ceiling, which includes capital expenditures associated with public entities that operate outside the general government budget.

“While the authorities’ plans to streamline and simplify the tax system are commendable, further reforms will be needed to enhance domestic revenue mobilization efforts. In this regard, the authorities committed to the implementation of a package of reforms that would increase the tax-to-GDP revenue by two percent of GDP over the next two years, with a focus on the elimination of exemptions rather than an increase in tax rates. A comprehensive reform package is needed to ensure that Egypt rebuilds fiscal buffers to reduce debt vulnerabilities, and generates additional space to increase social spending, especially in health, education and social protection.

“Staff and the authorities agreed on the need to speed up reforms to improve the business environment and ensure that the private sector becomes the main engine of growth. In this regard, more decisive efforts are needed to level the playing field, reduce the state footprint in the economy, and increase private sector confidence to help Egypt attract foreign investment and develop its full economic potential.

“While Egypt faces headwinds from the difficult external environment, there was agreement that further efforts were needed to accelerate the divestment program. The authorities expressed commitment to redouble their efforts in this area, which is crucial to support private sector development and to reduce the high debt burden.

“The CBE reiterated its commitment to sustain a flexible exchange rate regime to buffer the economy from external shocks, maintain tight monetary conditions to further reduce inflationary pressures, and continue to modernize its operations with a view to gradually transitioning toward a full-fledged inflation targeting regime. Bolstering financial sector resilience and the governance practices and competition in the banking sector should also be key priorities”.

[1] See IMF Press Release 24/429 of November 20, 2024 for further details on recent discussions. IMF Mission Concludes Visit to Egypt for the Fourth Review under the Extended Fund Facility