IMF approves $1.7bn in financing for Egypt after final review of economic reforms

The North African country's economy is expected to expand 5.2% in the 2021-2022 fiscal year

The Cairo skyline. Egypt responded to the Covid-19 crisis with timely fiscal and monetary easing, which helped mitigate the health and social impact while safeguarding economic stability, debt sustainability, and investor confidence, the IMF said. Reuters
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The International Monetary Fund (IMF) completed the second and final review of Egypt's economic reform programme, allowing authorities to draw $1.7 billion in funding.

This brings the total financing under a 12-month Stand-By Arrangement (SBA) to $5.4bn, or 184.8 per cent of quota, the Washington-based lender said in a statement on Thursday.

The IMF's executive board also concluded the 2021 Article IV consultation with Egypt.

"The economic recovery is under way," Antoinette Sayeh, the IMF's deputy managing director and acting chair, said. "The Egyptian authorities have managed well the economic and social impact of the Covid-19 pandemic. Proactive economic policies shielded the economy from the full brunt of the crisis, alleviating the health and social impact of the shock while maintaining macroeconomic stability and investor confidence."

Egypt is the only country in the Middle East and North Africa region whose economy grew last year amid the Covid-19 pandemic-induced slowdown, according to the World Bank. Its economy is expected to expand by 2.8 per cent in the fiscal year ending June 30, 2021, and accelerate 5.2 per cent during the 2021-22 financial year, according to IMF projections.

However, the outlook is still clouded by uncertainty related to the pandemic, according to the fund.

As of Thursday, Egypt had recorded more than 278,000 coronavirus cases and more than 15,000 deaths, according to data from Worldometer's global Covid tracker. The country also recorded 207,411 recoveries.

"High public debt and large gross financing needs leave Egypt vulnerable to shocks or changes in financial market conditions for emerging markets," Ms Sayeh said.

The IMF underscored the need for deepening and broadening structural reforms  to address post-pandemic challenges, strengthen buffers and unleash Egypt’s "enormous growth potential".

The fund's executive directors recommended continuing efforts to ensure debt sustainability, boost transparency and governance, and undertake structural reforms to build a greener, digital and more inclusive economy.

They also urged further efforts to boost private sector-led growth – including reducing the role of the state in the economy and leveling the playing field –improving the governance of public institutions, fostering labour market participation of women and youth, and encouraging exports.

The Central Bank of Egypt’s data-driven approach to monetary policy has helped keep inflation below its target range, Ms Sayeh said. This provides scope for monetary policy to further support the economic recovery as warranted by inflation and economic developments.

"Two-sided exchange rate flexibility is essential to absorb external shocks and maintain competitiveness," she added.

Egypt's banking system remains resilient, having entered the crisis well-capitalised and with ample liquidity.

"As crisis-related measures are unwound, continued supervisory vigilance will be needed to closely monitor lending standards," Ms Sayeh said.