IMF Approves New Funding Plan and Finalizes Egypt’s Economic Review

The IMF has completed the fourth review of Egypt’s EFF, approving US$1.2 billion in funding while emphasizing the need for decisive reforms to ensure economic stability and growth. Despite progress, challenges persist due to external factors, necessitating heightened efforts in structural reforms, fiscal sustainability, and enhancing business conditions for sustained recovery.

The International Monetary Fund (IMF) has finalized the fourth review of Egypt’s Extended Fund Facility (EFF), allowing Egypt to access approximately US$1.2 billion. Despite the challenging regional backdrop, Egypt has maintained macroeconomic stability, though the progress on structural reforms has been inconsistent. Moving forward, decisive reform implementation is essential to facilitate sustained growth, focusing on enhancing domestic revenue, improving the business environment, expedited divestment, and fostering good governance.

The approval of around US$1.3 billion under the Resilience and Sustainability Facility (RSF) and the completion of the 2025 Article IV Consultation marks significant milestones. Egypt’s EFF arrangement, initiated on December 16, 2022, now totals approximately US$3.2 billion. Recent economic indicators reflect a slowdown in growth to 2.4% for FY2023/24, recovering to around 3.5% in the first quarter of FY2024/25, while inflation has begun to decrease.

The IMF noted a widening current account deficit at 5.4% of GDP but an improved primary fiscal balance. Challenges persist, however, as external conditions remain tough due to ongoing regional conflicts and trade disruptions affecting Suez Canal revenues. Additionally, the Egyptian government plans to adjust fiscal commitments, targeting a primary balance surplus of 4% by FY2025/26.

Reforms regarding control over spending are essential for meeting fiscal targets amidst this economic environment. While Egypt’s shift to a flexible exchange rate has shown promise, maintaining vigilance for further stability is crucial. The authorities have initiated key structural reforms to advance competition and optimize financial sector operations.

In relation to climate initiatives, the RSF arrangement aims to bolster reforms for decarbonization and better environmental risk management. Overall, IMF officials recognize Egypt’s progress despite acknowledging the difficulties posed by external shocks and domestic challenges.

The Executive Board recommends strengthening fiscal sustainability through effective revenue mobilization and debt management strategies, emphasizing the need for a new economic model that prioritizes private sector growth and resilience against shocks. Directors underline that addressing energy prices, enhancing market competition, and implementing necessary structural reforms remain critical for Egypt’s economic recovery and sustainability.

In conclusion, the IMF’s approval of additional funding amidst Egypt’s economic recovery underscores the importance of structural reforms and macroeconomic stability. While Egypt has faced significant external challenges, its commitment to fiscal management and increased growth prospects is evident. To foster sustainable growth, Egypt must prioritize reforms that empower the private sector and enhance competitive conditions in the economy. Continued cooperation with the IMF will be pivotal in navigating the present economic landscape effectively.

Original Source: www.miragenews.com