IMF: Egypt making progress on reforms but must widen tax base

Fund says it will continue to hold talks on policies to support completion of fifth review

The IMF said reforms made by Egypt under its $8 billion programme are starting to 'yield positive results'. AFP

The International Monetary Fund on Tuesday said Egypt is making progress towards economic stability, but said authorities still need to widen the country's tax base.

“As Egypt’s macroeconomic stabilisation is taking root, it is now time to accelerate and deepen the reform efforts to reduce the state footprint, level the playing field, and improve the business environment,” the fund said.

An IMF staff mission held discussions with officials in Cairo from May 6 to 18 that could support the completion of the fifth review under Egypt's extended fund facility deal.

The IMF approved an $8 billion agreement in 2024 after first agreeing to a $3 billion programme in 2022.

“Egypt has made substantial progress towards macroeconomic stability,” mission chief Vladkova Holler said in a statement.

The fund said it had upgraded its economic growth forecast for Egypt for the 2024-25 fiscal year to 3.8 per cent. The Central Bank of Egypt last week said it expected real gross domestic product to increase by 4.3 per cent in the 2024-25 fiscal year after a slowdown in growth of 2.4 per cent in fiscal year 2023-24.

While inflation slightly rose to 13.9 per cent in April, the fund noted it remains “on a downwards trend”.

The central bank cut also cut its key interest rates by 100 basis points last week due to accelerated economic growth and a downwards trend in inflation. It was the bank's second rate cut this year.

Egyptian Prime Minister Mostafa Madbouly has previously said the country would implement more subsidy cuts on fuel, bread, diesel, electricity and water under the IMF programme.

The fund said it welcomed officials' efforts to improve tax and customs procedures to increase efficiency and build confidence.

The IMF also noted reforms are beginning “to yield positive results”.

“Alongside these efforts, domestic revenue mobilisation will need to continue, mainly by widening the tax base and streamlining tax exemptions.”

“With the macroeconomic stabilisation now under way, it is critical for Egypt to carry out deeper reforms to unlock the country’s growth potential, create high-quality jobs for a growing population, and sustainably reduce its vulnerabilities and increase the economy’s resilience to shocks," it said.

The fund said it would continue to hold virtual discussions on policies and reforms that could help support the completion of the fifth review.

The IMF unlocked roughly $2.5 billion in funding for Egypt in March.