Agreement between staff of the International Monetary Fund (IMF) and the Egyptian government

The staff of the International Monetary Fund (IMF) and the Egyptian government have agreed on comprehensive economic policies and reforms that will be supported by a $3 billion, 46-month Extended Fund Facility (EFF) arrangement. The new EFF aims to protect macroeconomic stability and debt sustainability, increase Egypt’s resistance to external shocks, bolster the social safety net, and advance reforms that support higher, private-sector-led growth and job creation.

Meetings were held in Washington, DC, and Cairo between October 4 and October 27, 2022, by a team from the International Monetary Fund (IMF), under the direction of Ivanna Vladkova Hollar, Mission Chief for Egypt, to conclude discussions regarding IMF assistance for Egypt and the government’s comprehensive economic reform plan. Following the conversation, Ms. Vladkova Hollar made the following declaration:

Proposed usage of funds

We are pleased to report that the Egyptian government and the IMF team have agreed at the staff level on the economic policies to be supported by a 46-month arrangement under the Extended Fund Facility (EFF). The new EFF, which has requested access to SDR 2.35 billion (roughly US$ 3 billion), aims to support Egypt’s budget and balance of payments while igniting additional funding from its regional and international partners. This financing will be used to maintain economic stability, address macroeconomic imbalances and the effects of the war in Ukraine, safeguard livelihoods, and advance significant structural and governance reforms that will encourage private sector-led growth and job creation. The IMF Executive Board must approve the deal; it will likely discuss the request from the authorities in December.

“Countries all over the world, including Egypt, are facing significant challenges as a result of the rapidly changing global environment and the effects of the war in Ukraine. The IMF team applauds the authorities’ recent moves to increase targeted social protection, put in place a long-term flexible exchange rate regime, and gradually phase out the requirement to use letters of credit for import financing. The team also applauds their unwavering commitment to address necessary macroeconomic adjustments and carry out an ambitious structural reform agenda in the face of a difficult global environment.

“The reduction of general government debt and gross financing requirements will be the cornerstone of the government’s fiscal policy under the EFF. The government’s Medium-Term Revenue Strategy (MTRS), which aims to increase the effectiveness and progressivity of the tax system, will support ongoing fiscal consolidation. The emergency support program will be temporarily extended to people who have ration cards, and additional steps will be taken to safeguard the purchasing power of vulnerably employed people and pensioners. Broad fiscal structural reforms will also seek to enhance governance, accountability, and transparency while supporting climate mitigation objectives.

“The Central Bank of Egypt’s (CBE) decision to adopt a flexible exchange rate regime is an important and welcome step toward resolving external imbalances, enhancing Egypt’s competitiveness, and luring foreign direct investment. The long-term rebuilding and protection of Egypt’s external resilience will be based on the nation’s commitment to ongoing, durable exchange rate flexibility. The EFF will assist the CBE in its initiatives to enhance the efficiency of the foreign exchange market, boost foreign reserves, and enhance the transmission of monetary policy. The goal of monetary policy, which will have a strong foundation in the CBE’s mandate for price stability, will be to gradually bring inflation down to the level set by the CBE.

The EFF wants to expand and deepen structural and governance reforms in order to unleash Egypt’s enormous growth potential. The program will include measures to unleash private sector growth, such as cutting back on government intervention, establishing a more robust framework for competition, increasing transparency, and ensuring better trade facilitation. Additionally, the government wants to increase spending on social assistance, health care, and education. In order to remove long-standing obstacles to Egypt’s higher, more sustainable, and more inclusive growth, these reform measures are essential.

The implementation of the authorities’ policies and reforms will be greatly aided by Egypt’s regional and international partners. For FY2022/23, additional funding of around $5 billion is anticipated from multilateral and regional partners, helping to improve Egypt’s external position.

The newly established Resilience and Sustainability Facility (RSF), which aims to provide affordable, long-term financing to help build resilience, including against climate change, has received a funding request from the Egyptian government as part of the EFF. In the upcoming months, discussions on access under this facility, which might open up an additional US$1 billion for Egypt, will take place.

“We look forward to continuing our engagement in support of Egypt and its people,” the officials said in a statement. “We would like to thank the authorities and their technical teams for the open and constructive discussions.”

on behalf of the International Monetary Fund, distributed by APO Group (IMF).

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