Egypt, IMF reach staff-level agreement on 1st review of 12-month SBA

Nehal Samir
4 Min Read

The International Monetary Fund (IMF) and Egyptian authorities have reached a staff level agreement on the first review of Egypt’s economic programme, supported by the IMF’s $5.2bn Standby Arrangement (SBA).

The agreement came during a virtual meeting between the two sides, held from 4-15 November between a team from the fund, led by its Mission Chief to Egypt Uma Ramakrishnan, and the Egyptian authorities.

The meeting was held to discuss recent economic developments and policy priorities of the first review for Egypt’s economic program supported by the IMF’s 12-month SBA.

At the end of the discussions, Ramakrishnan said, in a statement, “The IMF staff team and the Egyptian authorities have reached a staff-level agreement on the first review of Egypt’s economic program supported by the IMF’s $5.2bn Stand-by Arrangement. This agreement is subject to approval by the IMF’s Executive Board, which will take place in the coming weeks. Upon approval, an additional SDR1.16bn (about $1.6bn) will be made available to Egypt.”

She added, “The Egyptian economy has performed better than expected despite the pandemic. Containment measures, supported by the authorities’ effective crisis management, and strong implementation of their policy program helped mitigate the effects of the crisis.”

Ramakrishnan also said that, after recording a growth rate of 3.6% in fiscal year (FY) 2019/20, growth is projected to reach 2.8% in FY 2020/21. There will be a modest recovery in all sectors except tourism, as the novel coronavirus (COVID-19) pandemic continues to disrupt international travel. Pandemic-related risks still exist in light of the second global wave of COVID-19 cases.

“The authorities’ commitment and strong performance helped meet all program targets for end-September 2020,” Ramakrishnan said, “Net international reserve accumulation and the primary balance exceeded the programme targets. Subdued inflation in September of 3.7%, primarily reflecting lower food prices, triggered the monetary policy consultation clause.”

The updated financial information of state-owned enterprises (SOEs) and Economic Authorities was published in September. Additionally, the customs law to streamline the customs procedures was passed ahead of schedule, she noted.

“The Central Bank of Egypt’s (CBE) monetary policy remains appropriately accommodative. In this regard, we welcome the CBE’s recent interest rate cuts to further support economic recovery amid muted inflation,” Ramakrishnan said in the statement, “The exchange rate has modestly appreciated in the wake of an increase in capital inflows. Continued exchange rate flexibility will help absorb external shocks, and Egypt’s banking system remains liquid, profitable, and well capitalised.”

She also noted that Egypt’s fiscal policy in FY 2020/21 remains appropriately focused on supporting the immediate priorities in health, protecting the most vulnerable, and supporting sectors affected by the pandemic. It remains on track to achieve a primary surplus of 0.5% of GDP.

The government’s commitment to returning to a primary surplus of 2% of GDP, as the economic recovery becomes entrenched, will be essential to reduce public debt and support fiscal sustainability. The recent publication of contracts awarded for COVID-19-related spending is a welcome step towards increasing transparency and the team encourages continued updates to these publications.

“The team would like to thank the Egyptian authorities and the technical teams at the CBE and the Ministry of Finance, and other interlocutors for the constructive and candid discussions,” Ramakrishnan concluded.


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