IMF unlocks $2.5bn for Egypt after completing fourth loan review

The International Monetary Fund announced on Tuesday that its executive board has completed the fourth review of Egypt's $8 billion Extended Fund Facility loan, allowing the country to immediately draw about $1.2 billion.

This brings the total disbursements under the programme, approved in December 2022, to about $3.2 billion.

The IMF board also approved Egypt's request for a new $1.3 billion arrangement under the Resilience and Sustainability Facility to support reforms addressing climate change. More details on the RSF programme will be announced later, the fund said in a statement on Tuesday evening.

According to the IMF review, Egypt's authorities have made progress in stabilising the economy and rebuilding market confidence amid a challenging external environment marked by regional conflicts and trade disruptions in the Red Sea.

Gross domestic product growth has shown signs of recovery, inflation is moderating and foreign reserves are at adequate levels.

But the IMF noted that progress on structural reforms has been mixed, hindering growth prospects and private sector development. High debt levels and substantial financing needs also continue to pose significant medium-term fiscal challenges.

"Strengthening fiscal sustainability requires both effective domestic revenue mobilisation and a comprehensive debt management strategy," IMF deputy managing director Nigel Clarke said in a statement.

He said decisively reducing state participation and levelling the playing field will enable the private sector to become the primary engine of growth.

The IMF's assessment comes as Egypt's annual headline inflation dramatically fell from 24 per cent in January to 12.8 per cent in February, hitting the lowest level since March 2022, according to data released last week.

But economists cautioned that the sharp drop was largely due to a favourable base effect and that challenges and uncertainty remain.

Experts pointed to potential inflationary pressures from subsidy cuts expected this year, the possibility of the Gaza war resuming, and economic measures by the new US administration that could raise import prices for Egypt.

The Central Bank of Egypt has also kept interest rates unchanged at high levels since March 2024. This was one of the IMF's main recommendations to cool the country's economy.

Egypt turned to the IMF for support after Russia's invasion of Ukraine sparked a foreign currency crisis. It devalued its currency by nearly 70 per cent since March 2022 until finally turning to what the government says is a flexible exchange regime early last year.

However, the government's claim has been repeatedly contested by experts, with economic analyst Moustafa Badrah telling The National that there is a consensus among economists that the currency continues to be "managed" by the government.

The IMF said in Tuesday's statement that the move to a flexible exchange rate system since early 2024 has continued to produce positive results, but continuing vigilance is needed to consolidate this reform.

Looking ahead, the IMF emphasised that despite progress, risks remain significant for Egypt's economic outlook due to potential external shocks and domestic policy implementation.

Regional conflicts, global trade disruptions, domestic reform challenges and limited competition all threaten to undermine Egypt's growth and stability in the medium-term. In addition, carefully managing the social costs of needed fiscal reforms will be key.