The IMF has completed its fourth review of Egypt’s loan program, enabling $1.2 billion in immediate funding and totaling disbursements to $3.2 billion. A new $1.3 billion arrangement for climate change reforms was approved. While GDP growth and inflation rates improve, mixed structural reform progress and high debt levels pose ongoing fiscal risks that need careful management.
On Tuesday, the International Monetary Fund (IMF) announced the completion of the fourth review of Egypt’s $8 billion Extended Fund Facility loan, enabling the immediate release of approximately $1.2 billion. This brings total disbursements to around $3.2 billion since the program was approved in December 2022. Additionally, the IMF approved a new arrangement of $1.3 billion under the Resilience and Sustainability Facility to support climate change reforms. Further details regarding the program are forthcoming.
The IMF’s review acknowledges notable progress in stabilizing Egypt’s economy and restoring market confidence amidst challenging external factors like regional conflicts and trade disruptions. Egypt’s gross domestic product (GDP) growth is recovering, inflation is decreasing, and foreign reserves are at satisfactory levels. However, the review indicates that the advancement in structural reforms has been inconsistent, which hampers growth and private sector development. High debt levels and substantial financing needs present significant fiscal challenges.
IMF Deputy Managing Director, Nigel Clarke, emphasized the importance of enhancing fiscal sustainability through effective domestic revenue mobilization and a comprehensive debt management framework. He stated that reducing state participation can empower the private sector as a vital growth engine. Following a report showing a decline in Egypt’s annual headline inflation from 24 percent in January to 12.8 percent in February, experts expressed caution about the abrupt drop, attributing it largely to base effects and continued economic uncertainties.
Analysts highlighted possible inflationary pressures stemming from anticipated subsidy cuts, potential re-escalation of the Gaza conflict, and economic policies from the new US administration that may increase import costs for Egypt. The Central Bank of Egypt has maintained elevated interest rates since March 2024, adhering to one of the IMF’s principal recommendations to alleviate economic pressures.
Egypt sought IMF assistance after the foreign currency crisis triggered by Russia’s invasion of Ukraine, resulting in a nearly 70 percent currency devaluation since March 2022. While the government touts a flexible exchange regime introduced last year, many experts dispute this claim. Economic analyst Moustafa Badrah noted a consensus among economists that the currency remains under government management. The IMF affirmed that the flexible exchange rate implementation has yielded positive outcomes, although ongoing vigilance is necessary for consolidating this reform.
Future risks to Egypt’s economic outlook are considerable, mainly due to potential external shocks and the implementation of domestic policies. Factors such as regional conflicts, global trade issues, difficulties in domestic reforms, and limited competition pose threats to Egypt’s medium-term growth and stability. Moreover, effective management of the social impacts of necessary fiscal reforms will be essential for sustained progress.
In summary, the IMF’s recent review of Egypt’s economic situation highlights a mix of progress and challenges. While monetary stability and economic recovery are evident, ongoing structural reform requirements and external risks remain crucial concerns. The IMF’s enhanced support through additional financing may aid Egypt, yet careful management of fiscal policies and social impacts will be paramount for sustainable growth.
Original Source: www.thenationalnews.com
