IMF eases some terms of $8 billion loan package for Egypt

The International Monetary Fund (IMF) recently eased the terms of its $8 billion bailout package for Egypt to give the country more time to implement reforms. The update came as the IMF’s third review of the bailout package.

The IMF said Egypt meets half of the structural criteria for its third assessment but not the other requirements, which is why IMF staff is proposing to recalibrate two structural criteria, revise one and not reset two.

Ahead of the IMF’s third review of Egypt, the authorities maintained a flexible exchange rate regime and a liberalized foreign exchange regime, enacted implementing regulations for the Uniform Fiscal Law, published comprehensive tax expenditure and government procurement contracts reports, and introduced a fixed-rate full quota for the CBE’s seven-day deposit operations.

Structural benchmark deadline extension

However, Egypt did not ensure that it would timely publish the Central Audit Organization’s (CAO) annual audit report on its financial accounts by the end of March 2024, which is a binding requirement. Therefore, the IMF extended the deadline to the end of November 2024, as the authorities are currently amending the legislation governing the CAO and plan to introduce this requirement into law instead of into a decree.

Additionally, the IMF extended the deadline for the Central Bank of Egypt to prepare a recapitalization plan until the end of August 2024, as authorities prepared initial estimates of the central bank’s recapitalization needs. However, more time was needed to refine the estimates and plan an effective recapitalization strategy.

Additionally, the IMF amended Egypt’s implementation of a quarterly indexation mechanism for retail fuel prices and replaced it with a firm commitment to return fuel prices to cost-recovery levels by December 2025.

“Restoring energy prices, including retail fuel prices, to cost-recovery levels by December 2025 is essential to support a smooth supply of energy to the population and reduce energy sector imbalances,” the IMF added.

IMF completed requirements

The IMF did not set a new deadline for Egypt to draw up a plan to reduce its CBE claims on public sector entities (excluding the Ministry of Finance) as the country has already committed to reducing its CBE claims by 150 billion Egyptian pounds by the end of July 2024, and by a further 100 billion Egyptian pounds each fiscal year until the claims are reduced to zero.

In addition, the IMF did not reschedule the deadline for the Egyptian Petroleum Corporation (EGPC) to draw up a plan to repay its arrears, as the authorities have clarified their repayment strategy. Moreover, Egypt has taken steps to increase the company’s revenues by gradually raising energy prices. However, the IMF said it would consider tougher conditions for EGPC’s financial improvement in the future if Egypt’s current plan falls short.

Also read: UAE’s non-oil trade to hit record high of $379.81 billion in first half of 2024

Egyptian Economic Outlook

Egypt’s economic growth slowed to an average of 2.5% in the first half of fiscal 2023-24 as low confidence and foreign currency shortages held back overall investment. Deposits of Suez Canal revenues with the Central Bank fell 57% year-on-year in the first quarter of 2024. Meanwhile, the health of the non-oil private sector remains fragile despite an increase in the key purchasing managers’ index in May 2024.

The IMF sees Egypt’s real growth slowing to 2.7% in 2023-24, but a stronger recovery is expected in 2024-25 as development in the Ras el-Hekma region begins and pressures from regional conflicts and Red Sea turmoil are likely to ease in the second half of the year.

Over the medium term, the IMF expects growth to rise to around 5.5 percent as structural reforms that strengthen the business environment bear fruit. “Inflation is expected to trend lower over the next 12 months as base effects dissipate and policy tightening takes hold,” it added.

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