Egypt reaches staff level agreement with IMF for $1.2bn funding

Egyptian authorities agreed with Washington-based lender to speed up reforms

A busy market in Cairo. Egypt is navigating economic challenges with IMF support aimed at recovery and reform. EPA

The International Monetary Fund on Tuesday reached an agreement with Egypt, allowing the country to access about $1.2 billion, subject to approval by the executive board.

This follows the IMF staff-level agreement on the fourth review under the Extended Fund Facility (EFF) arrangement.

The extended fund facility is aimed at supporting Egypt’s efforts to secure a path for economic recovery.

“The Egyptian authorities have continued to implement key policies to preserve macroeconomic stability, despite ongoing regional tensions that are causing a sharp decline in Suez Canal receipts,” said Ivanna Vladkova Hollar, the IMF's Egypt mission chief.

The IMF said that officials in Egypt had agreed to continue attempts at boosting domestic revenues while improving the business environment in the country. AFP

In November, the Washington-based lender noted the challenges faced by Egypt, most notably the spillover effects from the Gaza war and trade disruptions in the Red Sea, where revenue has fallen by 70 per cent.

The IMF's managing director Kristalina Georgieva urged the Arab world’s most populous nation to continue implementing reforms agreed to as part of an $8 billion loan programme, during her visit to Egypt that month.

The IMF's latest statement on Egypt's Extended Fund Facility (EFF) arrangement underscores the urgency for the government to accelerate its exit from an economy that it continues to dominate, as one of the more crucial aspects of the reform agenda.

The same point was recently raised in a World Bank report that emphasised the state's exit as an essential route to economic recovery for Egypt to navigate through 2025 without requiring another deal like the sale of Ras El Hekma to a UAE consortium for $35 billion, which took place earlier this year.

The Ras El Hekma has proven to be a lifesaver for the Egyptian economy in 2024 that allowed it to bring down external debt and raise foreign reserves, however, its one-off nature means that during 2025, the government has to fend for itself.

The fund's call for reducing the state's footprint in the economy and levelling the playing field for the private sector underscores the importance of these reforms in attracting foreign investment and unlocking Egypt's full economic potential.

Egypt’s annual urban inflation rate in November dipped to 25.5 per cent, almost a two-year low. The drop comes as citizens throughout Egypt feel the burden of considerable hikes to their costs of living.

Bread, transportation and energy costs, to name a few things, are significantly more expensive compared to just two years ago, leaving many struggling.

The IMF said while Egypt's plans to streamline and simplify the tax system are commendable, further reforms will be needed to enhance domestic revenue mobilisation efforts.

The fund also alluded to the issue of tax exemptions granted to state and military-owned companies, which are part of the larger state presence in the economy that the fund insists Egypt must reduce.

The statement implies that raising taxes on some while maintaining exemptions for others is not a sustainable approach to enhancing domestic revenue mobilisation efforts.

“While Egypt faces headwinds from the difficult external environment, there was agreement that further efforts were needed to accelerate the divestment programme,” said Ms Vladkova Hollar.

“The authorities expressed commitment to redouble their efforts in this area, which is crucial to support private sector development and to reduce the high debt burden,” she added.

Although the IMF had previously shown leniency towards the government's pace of economic disengagement when President Abdel Fattah El Sisi requested a loan extension due to geopolitical conditions, the fund now appears to be reasserting the urgency of private sector reforms.

The IMF said that moving forward, Egyptian authorities had also agreed to pursue policies to boost domestic revenue, improve the country’s business environment, and enhance governance and transparency.

“A comprehensive reform package is needed to ensure that Egypt rebuilds fiscal buffers to reduce debt vulnerabilities, and generates additional space to increase social spending, especially in health, education and social protection,” Ms Vladkova Hollar said.

Egypt's economy has faced several challenges in recent years, including high debt levels, inflation and a foreign exchange shortage.

However, the country has made progress in its economic reforms, which has earned it consecutive bailout deals worth more than $60 billion from international partners.