IMF Approves New $2.5 Billion Disbursement for Egypt Amid Economic Reforms
The IMF has approved an immediate disbursement of $1.2 billion to Egypt following the completion of the fourth review of its $8 billion loan program. Additionally, a $1.3 billion arrangement under the RSF for climate reforms was approved. While Egypt shows signs of economic recovery and inflation decline, challenges remain regarding structural reforms and external risks.
On Tuesday, the International Monetary Fund (IMF) announced the completion of its fourth review of Egypt’s $8 billion Extended Fund Facility loan, enabling Egypt to draw approximately $1.2 billion immediately. This brings total disbursements under the program, initiated in December 2022, to about $3.2 billion. Furthermore, the IMF has approved a new $1.3 billion arrangement under the Resilience and Sustainability Facility (RSF) to facilitate climate change-related reforms, with additional details forthcoming.
The IMF’s review highlighted progress by Egyptian authorities in stabilizing the economy and restoring market confidence despite external challenges such as regional conflicts and trade disruptions. Indicators of recovery include signs of GDP growth, a moderation in inflation, and adequate foreign reserves. However, mixed progress on structural reforms poses hurdles to growth and private sector developments, with high debt levels and significant financing requirements presenting ongoing fiscal challenges.
IMF Deputy Managing Director Nigel Clarke emphasized the importance of enhancing fiscal sustainability through effective domestic revenue mobilization and a robust debt management strategy. He noted that decreasing state involvement and fostering a competitive environment would position the private sector as a primary growth driver. Egypt also saw a notable decline in annual headline inflation, dropping from 24 percent in January to 12.8 percent in February, attributed to favorable base effects, though challenges persist.
Economists raised concerns about inflationary pressures amidst anticipated subsidy cuts and uncertainties related to geopolitical tensions, such as the Gaza conflict. The Central Bank of Egypt has maintained high interest rates since March 2024, a strategy aligned with IMF recommendations to stabilize the economy. Egypt sought IMF assistance after experiencing a currency crisis triggered by Russia’s invasion of Ukraine, leading to a near 70 percent devaluation of its currency since March 2022.
Despite claims of transitioning to a flexible exchange regime, experts argue that the currency is still government-managed. The IMF noted that the move towards a flexible exchange rate has yielded positive outcomes, but cautioned that maintaining vigilance is essential for reform consolidation. Moving forward, significant risks to Egypt’s economic outlook remain due to potential external shocks and domestic policy challenges, necessitating careful management of social costs associated with fiscal reforms for sustained growth and stability.
In conclusion, the IMF’s support through disbursements and new arrangements underlines Egypt’s efforts to stabilize its economy amidst challenges. Progress has been made in growth and inflation moderation, but significant risks persist, especially regarding structural reforms and external shocks. The emphasis remains on enhancing fiscal sustainability and fostering a competitive private sector to drive future economic growth.
Original Source: www.thenationalnews.com
