A staff-level agreement under the Extended Fund Facility will allow Egypt to potentially access approximately USD 1.22 billion from the International Monetary Fund (IMF).
The deal, which must be approved by the IMF Executive Board, intends to give Egypt vital financial assistance as it negotiates a difficult economic environment. Egypt’s larger efforts to stabilise its economy in the face of high inflation and lower-than-expected revenues—including a drop in Suez Canal earnings—include the funding.
“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,” Ivanna Vladkova Hollar said, who led the IMF mission to Egypt, Arba News reported.
“Particular attention will be needed to contain fiscal risks stemming from state-owned enterprises 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,” Holler added.
She emphasised that more reforms are required to increase domestic revenue mobilisation, but she praised Egypt’s plans to simplify and streamline its tax system. Egypt agreed to increase its tax-to-revenue ratio by 2% of GDP over the following two years with an emphasis on removing exemptions rather than raising taxes.
“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,” she noted.
Egypt’s reform priorities for the future include increasing domestic revenue, enhancing governance and transparency, speeding up divestiture, improving the business environment, and levelling the playing field.
“While Egypt faces headwinds from the difficult external environment, there was agreement that further efforts were needed to accelerate the divestment programme. 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,” Holler concluded.
On the other hand, the European Commission has adopted a decision to disburse 1 billion euro in loans to Egypt following the fulfilment of the policy conditions agreed with the European Union under the ongoing Macro-Financial Assistance (MFA). This disbursement, which corresponds to the first and only instalment, will take place in the coming days.
“This financial support will help Egypt cover part of its financing needs for the fiscal year 2024/2025 and ensure macroeconomic stability, while supporting its home-grown reform agenda in conjunction with the ongoing International Monetary Fund (IMF) programme. Egypt’s economy started to recover earlier in the year following the announcement of IMF and EU support, after experiencing significant balance of payments pressure. While the recovery is continuing, the economy remains affected by the economic effects of Russia’s war of aggression against Ukraine and the situation in the Middle East,” the Commission stated.
This instalment comes after the Commission concluded that Egypt has taken measures to strengthen macroeconomic stability by unifying its fragmented exchange rate and improving its public financial management, while scaling up its social safety programme.
Progress has been made in the business and investment environment, through increased transparency on investment and import conditions, and strengthening the role of the competition authority. Advancements have also been achieved in promoting the green transition by adopting the updated “Egyptian Sustainable Energy Strategy” until 2040 and advancing private sector participation in renewable energy production.
This MFA, along with the second operation of 4 billion euro that is currently under discussion with co-legislators, forms a fundamental part of the “EU-Egypt Strategic and Comprehensive Partnership.”
It comes in response to multiple economic challenges over the last years, exacerbated by the complex geopolitical situation in the Middle East, where Egypt is a key pillar of stability and a strategic partner of the European Union.