IMF and Egypt reach agreement on economic review for final $2bn loan installment

Country 'on track' to achieve three-year fiscal consolidation target

Holiday makers take a boat tour on the Nile River past the Great Pyramids, in Cairo, Egypt, Friday, Aug. 18, 2017. (AP Photo/Amr Nabil)
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The International Monetary Fund reached an agreement with Egypt on the fifth and final review of its economic reform programme, which would unlock a $2 billion (Dh7.34bn) final loan tranche.

The agreement is subject to approval by the IMF's executive board, bringing the total disbursements under the three-year programme to $12bn, the fund said on Friday.

Egypt has been implementing tough economic reforms as part of a three-year $12 billion loan agreed with the IMF, starting in November 2016, with the programme ending in November this year. The measures included flotation of the exchange rate, energy subsidy cuts and fiscal consolidation. S&P Global Ratings maintained Egypt's credit rating at "B", five levels below investment grade, with a stable outlook, reflecting the country's strong economic growth prospects.

"Prudent monetary and fiscal policies and a flexible exchange rate have underpinned macroeconomic stabilisation and strengthened Egypt’s resilience to external shocks, while social protection measures have helped ease the burden of adjustment on the population," the IMF said.

The country is on "on track" to achieve its three-year fiscal consolidation objective of 5.5 percent of GDP in the primary balance, it added.

The North African nation is making "steady progress" in implementing measures to increase productivity, remove barriers to investment and trade, improve governance and reduce the role of the state in the economy, the international lender said.

"Timely completion of the planned measures would yield significant dividends in terms of higher investment, inclusive growth and job creation," said Subir Lall, who led the IMF team in a visit to Egypt this month to conduct the fifth and final review of the economic reform programme.

The IMF loan has helped to restore investor confidence in the country amid the economic overhaul, which sent inflation soaring.

The IMF said Egypt's efforts to achieve macroeconomic stabilisation, recovery in growth and improving the business climate have been successful. Unemployment has fallen, international reserves increased, GDP growth accelerated and gross general government debt is expected to narrow.

"Egypt has become more resilient to the elevated uncertainty in the external environment," the IMF said.
The Egyptian central bank's aim of reducing inflation to single digits in the medium term would help to further strengthen macroeconomic stability, reduce interest rates and attract investment, the IMF said.

The main priorities will include increasing tax revenues for much-needed spending on health, education and social programmes, according to the fund. 
"We welcome the authorities' focus on structural reforms as it needs to be deepened to facilitate inclusive growth and job creation for all," Mr Lall said.