IMF: Egypt successfully weathered recent capital outflows

Feb 6, 2019

CAIRO – 6 February 2018: Egypt has successfully weathered recent capital outflows, stressed David Lipton, First Deputy Managing Director and Acting Chair of the International Monetary Fund (IMF) on Wednesday, February 6.

The International Monetary Fund’s First Deputy Managing Director David Lipton – Reuters

Lipton added that consistent policy implementation is essential to further strengthen policy buffers by containing inflation, enhancing exchange rate flexibility, and reducing public debt, reported state news agency MENA.

Lipton said the macroeconomic outlook remains favorable, supported by strong policy implementation.

The IMF board approved on Monday a $2bn loan payment to Egypt, the latest in the country’s three-year aid program. The latest installment brings the total paid to Cairo to about $10bn since the loan deal was signed in November 2016.

Lipton said 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”, he said.

“Monetary policy remains anchored by the medium-term objective of bringing inflation to single digits.” he added.

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 Egyptian authorities have taken important steps to deepen the foreign exchange market and allow greater exchange rate flexibility, citing the elimination of 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,” Lipton said.

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.