Sunday 14, May 2017 by Matthew Amlôt

IMF reaches staff-level agreement for completion of the first review of Egypt's EFF

An International Monetary Fund (IMF) team led by Mr. Chis Jarvis visited Cairo from April 30 to May 11, 2017, to discuss policy priorities of the first review for Egypt’s economic reform program supported by a three-year IMF Extended Fund Facility (EFF).

At the conclusion of the mission Mr. Jarvis issued the following statement: 

“The IMF staff team and the Egyptian authorities have reached a staff-level agreement on the first review of Egypt’s economic reform program supported by the IMF’s $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 895.48 million (about $1.25 billion), bringing total disbursements under the program to about $4 billion.

“This agreement is a vote of confidence by the IMF staff in the continued implementation of the Egyptian authorities’ program. It is also testimony to the great efforts the Government and the Central Bank of Egypt (CBE) have been making to reform the economy. The authorities’ economic reform process is off to a good start. The liberalization of the exchange rate, as well as the introduction of a VAT and continuing with energy subsidy reform to strengthen the fiscal position, have all had significant effects. Foreign exchange shortages are resolved and interbank market activity is recovering. Egypt has regained investors’ confidence, as shown in the great appetite for Egypt’s Eurobond sale in January 2017 and private sector remittances and portfolio investments have increased considerably. The manufacturing sector-key for job creation--is witnessing a strong rebound and exports have increased significantly. Meanwhile, Egypt’s GDP growth reached 3.9 per cent in the first quarter of 2017 and primary fiscal deficit has fallen by about two per cent of GDP.

“The authorities see reducing inflation as a key priority for safeguarding the welfare of people across Egypt. We support the CBE’s objective. to bring down the rate of inflation to single digits over the medium term consistent with its price stability mandate. We are confident that the central bank has the tools to achieve this. We also commend the CBE for maintaining a floating exchange rate regime and sustaining adequate official reserves.

“The Ministry of Finance has drafted a very strong budget. If enacted by Parliament, it will place public debt on a clearly declining path to sustainable levels. We welcome in particular the plans to raise the VAT rate, and to continue the process of reforming energy subsidies over the three years. of the program. We also welcome the very good progress made on structural reforms, especially Parliament’s approval of the new industrial licensing and investment laws. Both acts will help unlock Egypt's growth potential, attract investors, increase exports and industrial production, as well as create adequate and well-paid jobs to absorb the rapidly growing labour force.

“We are very pleased with the strengthened social protection measures in the program. We are also very pleased that the government’s program includes steps to make it easier for women to work outside the home. The Takafol and Karama program has been expanded to include 1.6 million families which is nearly eight million people. 92 per cent of the program benefits women. The school meals for children program has been expanded to include all public schools and the government is spending more on a program for nurseries. In addition, the government is collaborating with the private sector to launch an innovative program to provide safe means of transportation. These measures are an essential counterpart to the economic reform effort, and they will protect the most vulnerable people in Egypt while the reform effort is underway.

“Egypt’s strong banking system continues to be the anchor for Egypt’s financial stability. It has weathered well the transition to a floating exchange rate regime. The CBE continues to aim to preserve and further strengthen the resilience of Egypt's financial sector while complementing the strong framework of banking regulation and supervision with adequate crisis preparedness and management tools.

“Public financial management and fiscal transparency will continue to be strengthened through reinforcing the institutional framework for coordinating among different policy-making bodies and continuing to update the elected parliament of budget updates.

“This is the Government’s program, and the IMF supports it. The program will lay the foundations for strong and sustainable growth that improves the lives of all Egyptians. The IMF team would like to thank the Egyptian authorities and the technical teams at the CBE and the Ministry of Finance for their openness, constructive discussions and their hospitality.”

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