IMF Staff Completes 2017 Article IV & Extended Fund Facility

Egypt’s growth picked up during fiscal year (FY) 2016/17, with full year GDP rising by 4.2 percent compared to the projected 3.5 percent.

The CBE remains committed to achieve its goal of reigning in inflation and the monetary policy framework is underpinned by a flexible exchange rate regime which has eliminated chronic foreign exchange shortages and the parallel market.

Reducing unemployment, specifically among Egypt’s youth, and integrating more women into the labor force, are key to Egypt’s economic liftoff and is the strongest and most sustainable form of social protection.

An International Monetary Fund (IMF) team led by Mr. Subir Lall visited Cairo from October 25 to November 9, 2017, to hold discussions on the 2017 Article IV Consultation with Egypt and the second review of Egypt’s economic reform program supported by a three-year IMF Extended Fund Facility (EFF—see Press Release No. 16/501 ).

At the end of the mission Mr. Lall issued the following statement:

“The IMF staff team and the Egyptian authorities have reached a staff-level agreement on the second review of Egypt’s economic reform program, which is supported by the IMF’s SDR 8.597 billion (about $12 billion) arrangement. The staff-level agreement is subject to approval by the IMF’s Executive Board. Completion of the review would make available SDR [1,432.76 million] (about US$2 billion), bringing total disbursements under the program to about US$6 billion.

“The staff-level agreement on the second review reaffirms the authorities’ commitment to their reform program supported by the IMF. Egypt’s economy continues to perform strongly, and reforms that have already been implemented are beginning to pay off in terms of macroeconomic stabilization and the return of confidence. While the reform process has required sacrifices in the short term, seizing the current moment of opportunity to transform Egypt into a dynamic, modern, and fast-growing economy will improve the living standards and increase prosperity for all Egyptians.

“Egypt’s growth picked up during fiscal year 2016/17, with GDP rising by 4.2 percent compared to the projected 3.5 percent. Meanwhile, the current account deficit narrowed in dollar terms, supported by the increase in non-oil exports and tourism receipts while non-oil imports declined. Reflecting increased investor confidence, portfolio investments into Egypt reached $16 billion this year and foreign direct investment rose by 13 percent. Headline inflation appears to have peaked in July and has been declining since then, supported by the Central Bank of Egypt’s (CBE) prudent monetary policy stance. The budget performance was broadly in line with program projections with a primary deficit of 1.8 percent of GDP. However, the overall deficit exceeded projections by 0.4 percent of GDP and reached 10.9 percent of GDP, mainly on account of higher than expected interest payments. Reflecting the overall strong policy framework and credibility of the authorities’ program, foreign exchange reserves increased significantly to record levels.

“The CBE remains committed to achieve its goal of reigning in inflation which is expected to decline to about 13 percent in the quarter ending December of 2018. Its monetary policy framework is underpinned by a flexible exchange rate regime which has eliminated chronic foreign exchange shortages and the parallel market.

“The government’s aim to achieve a primary surplus in the current fiscal year will help achieve Egypt’s program objective of putting government debt on a firmly downward trajectory over the medium term. This will reduce interest expenditures and create budgetary space for public infrastructure and well-targeted social spending. The mission also strongly supports the authorities’ plans to strengthen public financial management and fiscal transparency, including through enhanced monitoring of state-owned enterprises and publication of financial statements.

“The government is spearheading a comprehensive and ambitious agenda of structural reforms to unlock Egypt's growth potential. The reform plan aims to create well-paying jobs to meet the rapidly growing population by paving the way for increased private sector-led investment, productivity growth, and enhanced competition.

“Reducing unemployment, specifically among Egypt’s youth, and integrating more women into the labor force are key to Egypt’s economic liftoff and are the strongest and most sustainable form of social protection. We strongly welcome the authorities’ commitment to continue its efforts to expand childcare services to promote women participation in the labor market. Meanwhile, we also support the authorities’ efforts to strengthen social measures through the expansion of the “Takafol and Karama” programs which now reach 2 million families, and enhancing data collection to improve targeting and ensure that the subsidies reach the most vulnerable.

“Egypt’s banking sector continues to remain liquid, profitable, and well capitalized. The CBE continues to strengthen the regulatory and supervisory framework for the banking sector including through implementing Basel rules. We also support the authorities’ aim to promote financial inclusion.

“The team would like to thank the Egyptian authorities, the technical teams at the CBE and the Ministry of Finance, and our interlocutors from the Egyptian government for their candor, constructive discussions, and hospitality.”