The International Monetary Fund (IMF) stated in a release that on Friday, Egypt received approval from the IMF’s Executive Board for an increase in its extended financial support program to eight billion dollars. This allows for an immediate withdrawal of about 820 million dollars.
The fund agreed to expand the scope of the agreement after Egypt’s struggling economy was further impacted by the war in Gaza, which slowed tourism growth and prompted Houthi attacks in the Red Sea. This led to a halving of the Suez Canal revenues, a major source of foreign currency for Egypt alongside tourism and shipping.
The IMF Executive Board also announced the completion of the first and second reviews under Egypt’s Extended Fund Facility. The statement mentioned, “The challenging external environment created by Russia’s war in Ukraine was further exacerbated by the war in Gaza, as well as tensions in the Red Sea.”
The agreement expands a three-billion-dollar Extended Fund Facility for 46 months, initiated in December 2022, which was suspended after Egypt failed to comply with commitments to liberalize the currency exchange rate, accelerate the sale of state assets, and implement other reforms. The extension was first announced in March when the Central Bank of Egypt raised interest rates by six percentage points and allowed the Egyptian pound to depreciate against the dollar.
The IMF said, “A strong economic stabilization plan is being implemented to correct policy errors,” focusing on liberalizing the foreign exchange regime, tightening fiscal and monetary policy, reducing government investment, and allowing more space for the private sector.”
This includes continuing to cut subsidies, which consume a significant portion of government spending. Last week, Egypt raised prices for a wide range of fuel products. The fund emphasized, “Replacing untargeted fuel subsidies with targeted social spending is crucial as part of a sustainable fuel price adjustment package.”
The IMF noted that Egypt has established a new framework for monitoring and overseeing public investment to help manage rising demand, but the state needs to withdraw from economic activities. “Integrating transparent off-budget investment into the macroeconomic policy decision-making process will be critical,” the fund added.
Egypt is under pressure to reduce spending on large public projects. Last month, Egypt agreed to sell rights to develop prime land in Ras Al Hikma on the Mediterranean coast to the United Arab Emirates for 24 billion dollars. Egypt also received pledges of six billion dollars in funding from the World Bank Group and 8.1 billion dollars from the European Union this month.
The statement predicts Egypt’s growth rate to slow to three percent in the fiscal year ending in June 2024 from 3.8 percent in 2022-2023, before rebounding to about 4.5 percent in 2024-2025.
