The IMF team and the Egyptian government have reached an staff-level agreement on the fourth review for Egypt’s Extended Fund Facility(EFF), reported the IMF on Wednesday.
The IMF’s team, led by Subir Lall, visited Egypt from 18 to 31 October, to conduct the fourth review of Egypt’s economic reform programme, supported by a three-year EFF.
Towards the visit’s end, Lall said, “The IMF staff team and the Egyptian authorities have reached a staff-level agreement on the fourth review of Egypt’s economic reform programme, a $12bn EFF arrangement. The staff-level agreement is subject to approval by the IMF’s Executive Board. Completion of this review would make available $2bn, bringing total disbursements under the programme to about $10bn.“
Lall added further that the Egyptian economy has continued to perform well, despite less favourable global conditions, supported by the authorities’ strong implementation of the reform programme.
The government also remains committed to continuing energy subsidy reforms and raising revenues to invest in a well-targeted social safety net, health, education and infrastructure, he highlighted.
Lall elaborated that Egypt’s GDP growth accelerated from 4.2% in fiscal year (FY) 2016/17 to 5.3% in FY 2017/18, while unemployment declined to below 10%.
Meanwhile, the current account deficit narrowed to 2.4% of the GDP in FY 2017/18 from 5.6% the year before, primarily driven by strong remittances and a recovery in tourism sector.
Additionally, he pointed out that gross general government debt declined from 103% of the GDP in FY 2016/17 to about 93% of the GDP in FY 2017/18, supported by fiscal consolidation and higher growth.
He noted that the Central Bank of Egypt’s (CBE) prudent monetary policy helped decrease annual inflation from 33% in July 2017 to 11.4% in May 2018.
However, inflation increased again to about 16% 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, Lall indicated.
“Egypt’s banking system remains liquid, profitable, and well capitalized,” he remarked, adding, “We welcome the authorities’ comprehensive efforts to improve the living standards of the most vulnerable.”