IMF reaches initial deal with Egypt on delayed programme review, paving way for $2.5bn disbursal

Fund cites stronger growth but warns of debt risks for country

More IMF funding will strengthen reserves and ease fiscal pressures on Egypt, analysts say. EPA

The International Monetary Fund said it has reached a staff-level agreement with Egypt on long-delayed reviews of its $8 billion loan programme, as Cairo continues its economic reforms.

If approved by the IMF’s executive board, the new disbursement would unlock about $1.2 billion under the main programme and $1.3 billion through the Resilience and Sustainability Facility (RSF), adding to the $3.2 billion Egypt has received.

The latest funding is expected to strengthen reserves, ease fiscal pressures and reinforce confidence among international lenders.

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The agreement covers the fifth and sixth reviews under Egypt’s Extended Fund Facility (EFF) and the first review of the RSF, the IMF said in a statement following a mission to Cairo for talks with officials.

“Stabilisation efforts have delivered important gains and the Egyptian economy is showing signs of robust growth,” said mission chief Ivanna Vladkova Hollar.

The IMF cited stronger output, an improving balance of payments and easing inflation pressures following months of tight fiscal and monetary policy.

Economic growth increased to 4.4 per cent in the fiscal year 2024-2025 from 2.4 per cent the previous year, supported by non-oil manufacturing, transport, finance and tourism, the statement said.

Economic activity grew to 5.3 per cent annually in the first quarter of 2025-2026.

Foreign reserves climbed to $56.9 billion, while non-resident holdings of local currency debt increased to about $30 billion amid improved investor confidence and easing external conditions.

The reviews had been delayed for months as Egypt's implementation of IMF requirements on exchange-rate flexibility, fiscal consolidation and reducing the state’s footprint in the economy was stalled.

The fund said on Tuesday that Egypt has maintained an appropriately tight monetary stance and a gradual easing cycle to sustain disinflation. Urban inflation stood at 12.3 per cent in November, well below the peaks of nearly 40 per cent in late 2023.

The IMF also noted the need for continuing reforms in Egypt’s banking sector.

“The large presence of state-owned banks in the financial system requires continued robust governance practices to maintain financial health, strengthen a market-based transmission mechanism for monetary policy, and promote competition in the banking sector,” it said.

The Central Bank of Egypt has committed to follow through on independent third-party reviews to ensure best practices are in place.

Despite the solid rebound in tax revenue – up 36 per cent in 2024-2025 and another 35 per cent between July and November 2025-2026 – Egypt’s tax-to-GDP ratio remained modest at 12.2 per cent, below international levels.

A farm worker in Al-Sharqia governorate, Egypt. Inflation in the country has eased this year. Bloomberg

The IMF urged continued efforts to close the gap and reduce public debt while safeguarding targeted social spending.

Authorities aim for a primary balance surplus of 4.8 per cent this fiscal year and 5 per cent in 2026-2027.

A new set of tax reforms designed to lift revenue by about 1 per cent of GDP is set for cabinet approval in January 2026, the fund said.

The government has also pledged to maintain fiscal discipline while expanding support for vulnerable groups through the Takaful and Karama cash transfer programmes and other social protection measures.

The fund encouraged authorities to consider further increasing the budget allocation for these schemes.

Cairo has also revived its plans to accelerate privatisation and attract private investment – central to the IMF’s call for a level playing field. Updated policy framework rests on strengthening governance, expanding the role of the Sovereign Fund of Egypt, and enlarging private-sector participation.

Recent months have brought signs of tentative stabilisation.

Inflation has slowed, the exchange market has calmed, and Suez Canal revenue – badly hit by disruptions in Red Sea shipping – has begun to recover.

Data from the Suez Canal Authority shows revenue rising 14.2 per cent year-on-year between July and October as some shipping lines returned after months of very low traffic.

Tourism has also improved, with 15.6 million arrivals between January and October, up 21 per cent year-on-year, a trend expected to continue following the opening of the Grand Egyptian Museum.

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Meanwhile, new Gulf investments are bolstering foreign currency inflows, including a $29.7 billion agreement with Qatari Diar to develop a Mediterranean coastal city, part of a wider package of $7.5 billion announced earlier in the year.

However, despite recent improvements, Egypt’s high public debt remains a central concern for both policymakers and creditors.

The IMF said on Tuesday that fiscal policy must stay tight to “reduce gross financing needs and place budget sector debt on a sustained downwards path,” warning that debt vulnerabilities leave Egypt exposed to shifts in global interest rates and financing conditions.

Egyptian economists have also said that the country’s recent economic progress can very easily come undone if its borrowing, both from international lenders and through the sale of debt instruments through the central bank, is not brought under control.