The IMF approved a fourth review of Egypt’s loan, allowing an immediate draw of $1.2 billion. Total disbursements now reach $3.2 billion, with an additional $1.3 billion to aid climate reforms. The country’s economy shows recovery signs, yet challenges such as high debt and mixed reform progress persist. Risks from external shocks and domestic policies continue to impact economic stability.
The International Monetary Fund (IMF) announced its approval of a fourth review of Egypt’s $8 billion Extended Fund Facility loan, allowing Egypt to access approximately $1.2 billion immediately. This brings the total disbursements under the program, which was approved in December 2022, to about $3.2 billion. The IMF also sanctioned an additional $1.3 billion from the Resilience and Sustainability Facility to support climate change reforms, with further details to follow.
The latest IMF review highlighted progress made by Egypt’s authorities in stabilizing the economy and rebuilding market confidence amidst external challenges such as regional conflicts and trade disruptions. Key indicators show a recovery in gross domestic product growth, reduced inflation, and adequate foreign reserves. However, the IMF pointed out that mixed progress on structural reforms continues to obstruct growth and private sector development, alongside ongoing concerns regarding high debt levels and significant financing needs.
IMF deputy managing director Nigel Clarke emphasized the need for strengthening fiscal sustainability through effective domestic revenue mobilization and a coherent debt management strategy. He indicated that diminishing state intervention and fostering private sector growth are vital for economic advancement. Annual inflation in Egypt saw a notable decline from 24 percent in January to 12.8 percent in February, the lowest since March 2022, although economists warned this drop may only be a temporary effect.
Potential inflationary pressures could arise from upcoming subsidy reductions, the resumption of conflicts in Gaza, and new economic policies from the U.S. that might inflate import costs for Egypt. The Central Bank of Egypt has kept high-interest rates steady since March 2024, aligning with IMF recommendations to temper inflation. Egypt sought IMF assistance following a foreign currency crisis triggered by the war in Ukraine, leading to significant currency devaluation over the past year.
Despite the transition to a purportedly flexible exchange rate system, economic experts assert that governmental control persists over the currency, raising questions about the true nature of this flexibility. The IMF noted that initial positive outcomes followed the shift to a flexible exchange rate framework in early 2024 but stressed the need for continued vigilance in consolidating this reform. The IMF forecasted substantial risks to Egypt’s economic outlook, including external shocks, domestic reform hurdles, and social costs associated with fiscal adjustments.
In summary, the IMF’s recent approval of additional financial support for Egypt underscores both the progress accomplished and the challenges that lie ahead. Despite improvements in economic indicators, such as inflation and growth, highlighted challenges include structural reform inefficiencies and significant fiscal concerns. Continuous action is necessary for fiscal sustainability and fostering private sector involvement, while external risks remain a significant threat to Egypt’s economic future.
Original Source: www.thenationalnews.com
