Egypt and the International Monetary Fund (IMF) reached a staff-level agreement Thursday on a three-year US$12 billion fund aimed at bringing down budget deficit and debt, in addition to helping increase Egypt’s economic growth.
“I am pleased to announce that, in support of the government’s economic reform program, the Egyptian government, the Central Bank of Egypt (CBE) and the IMF team have reached a staff-level agreement on a three-year Extended Fund Facility (EFF) in the amount of SDR 8.5966 billion (422 percent of quota or about US$12 billion),” Chris Jarvis, IMF mission chief for Egypt, said in a statement released earlier on Thursday.
The deal comes as Jarvis and his team conclude a visit to Cairo that began on July 30 to finalize negotations. However, it still needs to be approved by the IMF’s executive board, which is expected to consider the request in the weeks to follow. In 2012, Egypt and the IMF reached a staff-level agreement for a $4.8 billion loan, but negotiations stalled before a final agreement was reached.
“The CBE monetary and exchange rate policy will aim to improve the functioning of the foreign exchange market, increase foreign reserves, and bring down inflation to single digits during the program,” Jarvis explained.
“Structural reforms will aim at improving the business environment, deepening labor markets, simplifying regulations and promoting competition,” he added. “The ambition is to significantly improve Egypt’s ratings in Doing Business and Global Competitiveness.”
Jarvis emphasized that the IMF program “supports the [Egyptian] authorities comprehensive reform program as approved by the Parliament.”
The Egyptian government’s policy will focus on reducing public debt, Jarvis added. “Over the program period general government debt is expected to decline from about 98 percent in 15/16 to about 88 percent of GDP in 2018/19,” he said.
Jarvis highlighted the passage of the value added tax law and cuts to energy subsidies as key elements of the reform policy. Savings made through economic reforms will be partially spent on social protection measures like subsidized infant formula and vocational training for youth, he added.
Tarek Amer, governor of the Central Bank of Egypt, said in a brief press conference on Thursday that an Egyptian program aimed at attracting foreign investments has won the support of the IMF, which reflects confidence in the Egyptian economy.
In his statement, Jarvis described Egypt as a “strong country with great potential but it has some problems that need to be fixed urgently.”
“The government recognizes the need for quick implementation of economic reforms for Egypt to restore macroeconomic stability and to support strong, sustainable and job-rich growth,” he said.
Meanwhile, Amer added that the agreement signals the return of foreign inflows, in addition to easing prices and the exchange rate. He also said that Egypt’s budget deficit posed a hurdle to economic reform, noting that local reserves were inadequate.
Egypt’s economy has been struggling since the January 2011 uprising. In March, the Central Bank devalued the pound by over 10 percent, which marked the biggest step of its kind since 2003.