IMF to complete 3rd review of Egypt’s recovery programme at June-end
The third review of Egypt’s economic reform programme would be completed before the end of June, followed by the disbursement of a new tranche of the loan worth up to $820 million, Ivanna Vladkova Hollar, head of the International Monetary Fund (IMF) mission to Egypt told Amwal Al Ghad Arabic on Monday.
“The next review will be the third review under the Extended Fund Facility and is expected to take place on a quarterly cycle, meaning that we would expect it to be completed and considered by the IMF Executive Board by end June 2024.” Hollar said.
Reviews on Quarterly Cycles
“So in just about three months. That review is also expected to unlock 820 million. So the same amount that was disbursed under the disbursement that took place after the approval of the first and second reviews. The remainder of the reviews so the fourth through the 8th reviews, under the programme will take place every six months thereafter, with each disbursement currently programmed to be about $1.3 billion. The last review is scheduled for the fall of 2026.” the IMF official said.
Last week, the IMF announced the completion of the first and second reviews of the extended arrangement with Egypt, along with approving an increase in the loan amount from $3 billion to $8 billion.
The IMF explained that this allows Egypt to immediately draw about $820 million (618.1 million special drawing rights) and Prime Minister Moustafa Madbouly stated that the value of the first tranche after the review would be received this week.
The Fund noted that with the completion of the review, the Executive Board valued that Egypt had met all quantitative performance criteria by the end of June 2023 except for one.
The board approved the Egyptian government’s request for an exemption from considering the performance criterion for June regarding net international reserves based on corrective measures.
The IMF pointed out that Egypt’s macroeconomic conditions since the programme’s approval have been challenging, with inflationary pressures, foreign exchange shortages, rising debt levels, and financing needs, exacerbated by the difficult external environment resulting from the Russia/Ukraine conflict along with the Gaza war, as well as tensions in the Red Sea.
These developments have compounded the complexity of macroeconomic challenges and called for decisive policy actions supported by a stronger external financing package, including from the IMF.
The IMF confirmed that external shocks and delayed policy adjustments have affected economic activity, leading to a slowdown in growth to 3.8 per cent in the fiscal year 2022/2023 due to weakened confidence and foreign exchange shortages.
It is expected to further slow down to 3 per cent in the financial year 2023/2024 before recovering to around 4.5 per cent in the financial year 24/25, with inflation remaining high but expected to decline in the medium term as policy tightening continues.
Regarding Ras Al-Hekma development project, the IMF official stated that the recent $35 billion investment deal announced by an Abu Dhabi-based investment and holding company in the project would alleviate pressures on the balance of payments in the near term, and if used wisely, it would help Egypt rebuild safety margins to deal with future shocks.
It emphasised that consistent implementation of economic policies within the programme framework is crucial for sustainably addressing Egypt’s macroeconomic challenges, as well as strong implementation of structural reforms to allow the private sector to become a growth engine.
“There is no doubt that the recent sizable investment deal in Ras Al-Hekma eased near-term external financing pressures. However, it is still critical for Egypt to continue with the implementation of economic policies under the program in order to sustainably address Egypt’s macroeconomic challenges. The authorities have committed to use a large part of the new financing to improve the level of reserves, to fast track the clearance of foreign currency backlogs and arrears, and to reduce government debt upfront. This is prudent and the right choice, as it would allow Egypt to improve its economic outlook faster and also be able to rely on stronger buffers in the face of any new future shocks.” Hollar noted.
