IMF says Egypt needs deeper fiscal and structural reforms

The Arab world's third-largest economy is seeking a loan from the fund to mitigate the impact of the Ukraine war

Construction workers at a work site in Arish, Egypt. The IMF says the North African country remains vulnerable to a high public debt burden. EPA

The International Monetary Fund said Egypt needs to make “decisive progress” on deeper fiscal and structural reforms, as the country seeks a new loan from the Washington-based lender.

The primary objectives of the IMF's assistance to Egypt throughout the Covid-19 pandemic helped the North African country maintain economic stability and strengthened domestic confidence, but reforms are needed to foster private sector development, improve governance and reduce the role of the state, the IMF's executive board said in a statement on Tuesday.

The fund's directors cited Egypt's “remaining vulnerability” as a result of a high public debt burden and large gross financing requirements.

“Decisive progress on deeper fiscal and structural reforms is needed to boost the economy’s competitiveness, improve governance and strengthen its resilience against shocks,” the directors said.

The comments came in an IMF evaluation of a $5.2 billion standby arrangement with Egypt, along with $2.8bn under the lender’s Rapid Financing Instrument in 2020, to cope with the fallout from the coronavirus pandemic.

The board's evaluation should “inform the ongoing discussions on the fund’s future engagement with Egypt”, the directors said.

Egypt is in talks with the lender for a new loan as the Arab world's third-largest economy comes under pressure from the fallout of the war in Ukraine.

The Russia-Ukraine war, higher energy prices and supply chain disruptions caused by the Covid-19 pandemic are combining to raise the price of food items, especially wheat-based products such as bread, a main staple for most of the country’s 102 million people.

Also affected by the war is Egypt’s vital tourism sector that contributes more than 10 per cent of its gross domestic product and is heavily dependent on visits from Russia and Ukraine.

Egypt, where about 30 per cent of the population lives below the poverty line, buys 80 per cent of its wheat — 13 million tonnes in 2021 — from Russia and Ukraine.

The North African country has approached the IMF twice seeking help since 2016, when it secured a $12bn loan as part of a far-reaching reform programme that featured a devaluation of its currency, the lifting of state subsidies on essential services and the introduction of a wide range of taxes.