IMF Executive Board completes 4th review under the Extended Fund Facility to Egypt

The three-year EFF arrangement in the amount equivalent to SDR 8.597 billion (about US$12 billion at the time of approval, or 422 percent of quota) was approved by the Executive Board on November 11, 2016 (see Press Release No. 16/501) to support the authorities’ economic reform program. Following the Executive Board discussion on Egypt, Mr. David Lipton, First Deputy Managing Director and Acting Chair, said: “The macroeconomic outlook remains favorable, supported by strong policy implementation. Robust growth and a narrowing of the current account deficit reflect a rebound in tourism and strong remittances, while unemployment has declined to its lowest level since 2011. The public-debt-to-GDP ratio declined markedly last year and is projected to decline further over the medium term due to the authorities’ fiscal consolidation efforts and high nominal GDP growth. “While the outlook remains favorable, a more difficult external environment poses new challenges as global financial conditions have tightened. Egypt has successfully weathered recent capital outflows, but consistent policy implementation will be essential to further strengthen policy buffers, including by containing inflation, enhancing exchange rate flexibility, and reducing public debt. “Monetary policy remains anchored by the medium-term objective of bringing inflation to single digits. The recent pick-up in headline inflation reflected temporary increases in food and energy prices, but a restrictive monetary policy stance has helped to reverse the increase and keep core inflation well anchored. The authorities have taken important steps to deepen the foreign exchange market and allow greater exchange rate flexibility, including by eliminating the repatriation mechanism. “This year’s primary surplus target of 2 percent of GDP appears on track, which would achieve a cumulative fiscal adjustment of 5.5 percent of GDP in three years. The authorities remain committed to reaching cost recovery for most fuel products by mid-2019 and implementing automatic fuel price indexation, which together are critical to encourage more efficient energy use, and combined with revenue enhancing reforms will help create fiscal space for high-priority spending on health and education. “The authorities’ structural reform agenda aims to support inclusive growth by addressing long-standing constraints to private sector development. These include reforms to improve competition policy, public procurement, management of SOEs, and land allocation. Sustained implementation of these reforms is essential to reduce opportunities for rent seeking and to support strong and inclusive medium-term growth and job creation.

Table 1. Egypt: Selected Macroeconomic Indicators, 2015/16–2019/20 1/
	2015/16	2016/17		2017/18			2018/19		2019/20
				Third Review	Prel.		Third Review	Revised Proj.
Output and prices
Real GDP (market prices)	4.3	4.2		5.2	5.3		5.5	5.5	5.9
Consumer prices (end of period)	14.0	29.8		12.6	14.4		13.1	14.5	10.7
Consumer prices (period average)	10.2	23.5		20.8	20.9		14.4	15.8	12.8
Public finances 2/
Gross Debt	96.9	103.2		92.4	92.6		86.2	86.0	83.3
External	7.8	18.1		18.5	19.2		17.0	18.0	17.6
Domestic	89.0	85.0		73.9	73.4		69.2	68.0	65.7
Budget sector 3/
Revenue and grants	18.1	19.0		18.2	18.2		18.6	18.3	17.8
Expenditure (incl. net acquisition of financial assets)	30.7	29.9		27.9	27.9		26.7	26.6	24.5
Of which: Energy subsidies	3.0	4.1		3.4	3.4		2.1	2.1	1.2
Overall balance	-12.5	-10.9		-9.7	-9.8		-8.1	-8.3	-6.7
Overall balance, excl. grants	-12.7	-11.4		-9.7	-9.8		-8.1	-8.3	-6.7
Primary balance 4/	-3.5	-1.8		0.2	0.2		2.0	2.0	2.0
Monetary sector
Credit to the private sector	14.2	38.0		7.5	10.1		18.2	19.2	18.9
Reserve money	29.3	-7.8		40.2	28.3		27.6	34.2	20.7
Broad money (M2)	18.6	39.3		23.4	18.5		19.8	20.8	20.5
Treasury bill rate, 3 month (average, in percent)	11.8	17.5		18.5	18.8		…	…	…
External sector
Exports of goods (in US$, percentage change)	-15.9	16.2		13.8	18.9		16.5	14.4	5.3
Imports of goods (in US$, percentage change)	-6.4	2.8		4.5	6.9		10.0	6.4	3.1
Merchandise trade balance	-11.6	-14.5		-14.5	-14.9		-12.5	-12.4	-11.3
Current account	-6.0	-5.6		-2.8	-2.4		-2.6	-2.5	-1.8
Capital and financial account (incl. errors and omissions)	5.1	4.8		5.0	4.0		1.8	2.0	2.0
Foreign direct investment (net, in billions of US$)	6.8	7.8		7.8	7.4		9.5	9.5	11.2
External debt 5/	18.3	41.3		34.5	37.4		29.9	34.4	31.3
Gross international reserves (in billions of US$)	17.1	30.7		44.4	43.5		44.8	44.9	45.4
In months of next year's imports of goods and services	3.0	5.0		6.8	6.6		6.1	6.6	6.3
In percent of short-term external debt 6/	173.7	124.5		146.2	139.1		191.4	160.2	147.7
Financing gap (in billions of US$)	…	…		0.0	0.0		1.1	0.0	0.0
Memorandum items:
Nominal GDP (in billions of Egyptian pounds)	2,709	3,470		4,436	4,437		5,365	5,414	6,458
Nominal GDP (in billions of US$)	332	256		250	250		306	303	336
GDP per capita (in US$)	3,686	2,704		2,578	2,573		3,081	3,052	3,314
Unemployment rate (period average, percent)	12.7	12.2		11.1	10.9		9.7	9.6	8.3
Population (in millions)	90.2	94.8		97.0	97.0		99.2	99.2	101.5
Sources: Egyptian authorities; and IMF staff estimates and projections.
1/ Fiscal year ends June 30.
2/ General government includes the budget sector, the National Investment Bank (NIB), and social insurance funds.
3/ Budget sector comprises central government, local governments, and some public corporations.
4/ The primary balance for 2017/18 excludes the recapitalization of the CBE for EGP 6 billion.
5/ Includes multilateral and bilateral public sector borrowing, private borrowing and prospective financing.
6/ Debt at remaining maturity and stock of foreign holding of T-bills.