Egypt’s major commitments under the IMF’s $8 bln expanded loan deal

The first and second reviews were based on the original amount of $3 billion, with the third review set to be completed by the end of June. The three reviews, once completed, will have unlocked a total of $820 million for the country. These reviews were delayed by over a year amid global and regional tensions that eroded Egypt’s ability to meet its commitments.

The fourth through eighth and final reviews are scheduled to be completed every six months, allowing the country to receive around $1.3 billion each time.

The IMF programme is complemented by support from several international partners, including the World Bank, the African Development Bank, the Asian Infrastructure Investment Bank, and the European Commission, as well as other bilateral partners, all of whom have committed to financing the programme.

Hereunder are the commitments Egypt has pledged to the IMF as shown in Egypt’s letter of intent:

• Egypt has unified the exchange rate and shifted to a flexible exchange rate regime and a liberalized foreign exchange system. These actions contribute to eliminating the backlog for foreign exchange demand. Egypt took such actions to boost confidence in the policy package included in the loan programme.

The Central Bank of Egypt (CBE) decided in March to let the Egyptian pound be set according to the supply and demand forces in the local currency. The action allowed the Egyptian pound to lose over 60 percent of its value against the US dollar.

• Supporting the local currency shift and sending a strong signal of Egypt’s commitment to maintaining price stability, the CBE has significantly tightened monetary policy and will constrain further the expansion of its balance sheet, including by reducing the Ministry of Finance’s overdraft at the central bank and stopping CBE lending to other public agencies.

In March, the CBE hiked the key interest rates by six percent (600 bps), bringing the total hikes applied since the beginning of 2024 to eight percent (800 bps).

• Sterilizing the injection of liquidity from foreign exchange purchases and the conversion of foreign exchange deposits into local currency.

• The CBE also committed to continue strengthening monetary transmission, aiming at bringing down the country’s inflation back to target over the medium term. The CBE sets a target of seven percent (±2 percent) in the fourth quarter of 2024, yet, the current levels of inflation remain over 33 percent according to the recent calculations of the CBE and CAPMAS.

• Egypt also committed to bolstering its fiscal efforts to bring down debt and reduce financing needs, by targeting a more ambitious primary surplus (3.5 percent in the upcoming FY2024/2025, up from an estimated 2.5 percent in current FY2023/2024).

In this respect, Egypt pledged to use a “notable part” of the proceeds from its privatization and divestment programme along with $12 billion of the receipts from the recent Ras El-Hekma investment deal to further reduce government debt.

In February, Egypt signed a deal with the UAE’s ADQ to develop the coastal zone of Ras El-Hekma with total FDIs of $35 billion. According to the latest announcement made by the Egyptian Prime Minister, Egypt has already received $15 billion out of the $24 billion it is receiving in cash flow from the deal, while the remaining $11 billion are UAE deposits at the CBE that will be dedicated to the project’s investments.

• Egypt committed to strengthening its monitoring and control of extra-budgetary public investment as well as managing fiscal risks as a tool to achieve consistency in the macro policy structure and prevent pressures from resurfacing in the foreign exchange market.

The prime minister issued a decree requiring all public entities to report their investment activity as a first step in improving the transparency of broader public sector activity.

• To boost private sector participation, Egypt pledged to reduce the state’s footprint in the economy and embrace structural reforms that seek to strengthen the business environment as outlined in the State-Ownership Policy the state launched last year.

According to Egypt’s letter of intent, the divestment programme will be an important source of foreign exchange inflows and will help the country’s debt reduction efforts.

Egypt’s overall debt is estimated at 96 percent of GDP in the current FY2023/2024, which ends by the end of June, while the government targets to bring it down to below 83 percent in the upcoming FY2024/2025, according to the FY2024/2025 budget plan.

Egypt also pledged to apply forms aimed at strengthening procurement practices, enhancing competition, and improving the ease of doing business.

• The CBE is committed to using the $15 billion of the proceeds from the Ras El-Hekma deal to build buffers against future shocks.