What:
The International Monetary Fund’s (IMF) Executive Board has green-lighted a substantial USD 5 billion extension to Egypt’s financial support package and wrapped up the long-awaited first and second reviews of the agreement according to statements by the UN’s financial institution on Friday.
The Tranche:
The IMF has agreed to an immediate release of about USD 820 million, set to land this week, according to Prime Minister Moustafa Madbouly’s recent announcement.
How are we doing so far?
The IMF has acknowledged Egypt’s efforts to address macroeconomic imbalances, highlighting steps like exchange rate unification, clearing the foreign exchange backlog, and reinforcing monetary and fiscal policies. These moves are essential for progress, according to IMF’s Managing Director Kristalina Georgieva.
The Missing Target:
Egypt, however, missed a key goal related to net international reserves by the end of June 2023. However, the IMF Executive Board granted a waiver, recognizing the government’s corrective actions.
Now What:
Georgieva stressed the need for Egypt to continue its transition to a liberalized foreign exchange system, maintain tight monetary and fiscal policies, and integrate transparently off-budget investment into macroeconomic policy decision making. Managing capital inflows effectively is crucial to mitigate external risks and control inflation as well, according to Georgieva.
- Off–budget investment? This refers to the need for Egypt to manage investments that are not part of the official government budget transparently. This means that even if investments are made outside the normal budgetary process (e.g., through state-owned enterprises, special funds, or public-private partnerships), they should still be managed in a way that aligns with the country’s economic goals and is open to scrutiny.
The Backstory:
Egypt has been juggling some serious economic balls lately: high inflation, a severe dollar shortage, and a debt mountain. Back in December 2022, the IMF gave the nod to a USD 3 billion financial aid package for Egypt, but paused on handing out the bulk of this sum and pushed back two critical reviews, originally slotted for March and September of 2023.
This pause came about because Egypt didn’t tick off some important boxes on the loan’s checklist, notably, the pledge to shift to a completely flexible currency exchange system.
The Central Bank of Egypt shifted the EGP to a flexible exchange rate regime and spiked interest rates by 6% on March 6. And the IMF recently expanded the package to USD 8 billion.
