Arab Republic of Egypt: First and Second Reviews Under the Extended Arrangement Under the Extended Fund Facility, Monetary Policy Consultation, and Requests for Waiver of Nonobservance of a Performance Criterion, and Augmentation and Rephasing of Access-Press Release; and Staff Report

April2024 IMFCountryReportNo.24/98 ARABREPUBLICOFEGYPT FIRSTANDSECONDREVIEWSUNDERTHEEXTENDEDARRANGEMENTUNDERTHEEXTENDEDFUNDFACILITY,MONETARYPOLICYCONSULTATION,ANDREQUESTSFORWAIVEROFNONOBSERVANCEOFAPERFORMANCECRITERION,ANDAUGMENTATIONANDREPHASINGOFACCESS—PRESSRELEASE;ANDSTAFFREPORT InthecontextoftheArabRepublicofEgypt—FirstandSecondReviewsUndertheExtendedArrangementUndertheExtendedFundFacility,MonetaryPolicyConsultation,andRequestsforWaiverofNonobservanceofaPerformanceCriterion,andAugmentationandRephasingofAccess,thefollowingdocumentshavebeenreleasedandareincludedinthispackage: APressReleaseincludingastatementbytheChairoftheExecutiveBoard. TheStaffReportpreparedbyastaffteamoftheIMFfortheExecutiveBoard’sconsiderationonMarch29,2024,followingdiscussionsthatendedonMarch7,2024,withtheofficialsofEgyptoneconomicdevelopmentsandpoliciesunderpinningtheIMFarrangementundertheExtendedFundFacility.Basedoninformationavailableatthetimeofthesediscussions,thestaffreportwascompletedonMarch19,2024. AStaffSupplementupdatinginformationonrecentdevelopments. TheIMF’stransparencypolicyallowsforthedeletionofmarket-sensitiveinformationandprematuredisclosureoftheauthorities’policyintentionsinpublishedstaffreportsandotherdocuments. CopiesofthisreportareavailabletothepublicfromInternationalMonetaryFundPublicationServicesPOBox92780Washington,D.C.20090 Telephone:(202)623-7430Fax:(202)623-7201 E-mail:publications@imf.orgWeb:http://www.imf.org InternationalMonetaryFundWashington,D.C. ©2024InternationalMonetaryFund PR24/101 IMFExecutiveBoardCompletestheFirstandSecondReviewsofExtendedFundFacilityArrangementforEgypt,ApprovesAugmentationoftheArrangement FORIMMEDIATERELEASE TheIMFBoardtodaycompletedtheFirstandSecondReviewsoftheextendedarrangementundertheExtendedFundFacility(EFF)forEgyptandapprovedanaugmentationoftheoriginalprogrambyaboutUS$5billion(SDR3.76billion),allowingtheauthoritiestodrawtheequivalentofaboutUS$820million(SDR618.1million). Astrongeconomicstabilizationplanisbeingimplementedtocorrectpolicyslippages.Theplaniscenteredonaliberalizedforeignexchangesysteminthecontextofaflexibleexchangerateregime,asignificanttighteningofthepolicymix,reducingpublicinvestment,andlevelingtheplayingfieldtoallowtheprivatesectortobecometheengineofgrowth. WhiletherecentsizableinvestmentdealinRasEl-Hekmaalleviatesthenear-termfinancingpressures,implementationoftheeconomicpoliciesundertheprogramremainscriticaltoaddressEgypt’smacroeconomicchallenges.Robustdeliveryonstructuralreformswillbecriticaltolockinthebenefitsoftheimprovedfinancingenvironment. Washington,DC–March29,2024:TheExecutiveBoardoftheInternationalMonetaryFund(IMF)completedthefirstandsecondreviewsofEgypt’sExtendedFundFacilityarrangementwithEgyptandapprovedanaugmentationoftheoriginalprogrambyaboutUS$5billion(SDR 3.76billion).ThisenablestheauthoritiestoimmediatelydrawaboutUS$820million(SDR 618.1million).Egypt’s46-monthEFFarrangementwasapprovedonDecember16,2022. Incompletingthereview,theExecutiveBoardassessedthatallbutoneofthequantitativeperformancetargetsforend-June2023weremet.TheBoardapprovedtheauthorities’requestforawaiverfornon-observanceoftheJuneperformancecriteriononNetInternationalReservesonthebasisofcorrectiveactions. Macroeconomicconditionssincetheapprovaloftheprogramhavebeenchallenging,withrisinginflation,foreignexchangeshortagesandelevateddebtlevelsandfinancingneeds.ThedifficultexternalenvironmentgeneratedbyRussia’swarinUkrainewassubsequentlyaggravatedbytheconflictinGazaandIsrael,aswellastensionsintheRedSea.Thesedevelopmentsincreasedthecomplexityofmacroeconomicchallengesandcalledfordecisivedomesticpolicyactionsupportedbyamorerobustexternalfinancingpackage,includingfromtheIMF. Withinthiscontext,externalshocksanddelayedpolicyadjustmentweighedoneconomicactivity.Growthslowedto3.8percentinFY2022/23duetoweakconfidenceandforeignexchangeshortagesandisprojectedtoslowfurtherto3percentinFY2023/24beforerecoveringtoabout4½percentinFY24/25.Inflationremainshighbutisexpectedtoeaseoverthemediumtermasthepolicytighteningtakeshold. 2 TherecentlyannouncedUS$35billioninvestmentdealfromanAbuDhabi-basedinvestmentandholdingcompanyinRasEl-Hekmahasalleviatednear-termbalanceofpaymentpressuresand,ifusedjudiciously,willhelpEgyptrebuildbufferstodealwithfutureshocks.Nonetheless,steadfastimplementationoftheeconomicpoliciesundertheprogramremainscriticaltosustainablyaddressEgypt’smacroeconomicchallenges,asdoesrobustdeliveryonstructuralreformstoallowtheprivatesectortobecometheengineofgrowth. AttheconclusionoftheExecutiveBoard’sdiscussion,Ms.KristalinaGeorgieva,ManagingDirectorandChairmadethefollowingstatement: “EgyptisfacingsignificantmacroeconomicchallengesthathavebecomemorecomplextomanagegiventhespilloversfromtherecentconflictinGazaandIsrael.ThedisruptionsintheRedSeaarealsoreducingSuezCanalreceipts,whichareanimportantsourceofforeignexchangeinflowsandfiscalrevenue. “TheauthoritieshavesignificantlystrengthenedthereformpackageunderlyingtheExtendedFundFacilityarrangement,supportedbyanaugmentationofaccess.Recentmeasu