The second tranche of our IMF package could arrive this summer: We are in line to receive the second USD 820 mn tranche under the IMF’s USD 8 bn loan program this summer after the fund completes its third review of the facility, IMF mission chief for Egypt Ivanna Hollar said during a press conference yesterday. The third review is expected to be complete by the end of June.

Remember: The IMF’s Executive Board signed off on the USD 5 bn extension for our extended fund facility and completed its long-delayed first and second reviews of the facility over the weekend. Of the total USD 8 bn program, the Fund also approved a decision to let the state “immediately draw” around USD 820 mn this week.

What about the rest of the funds? Reviews, each unlocking a USD 1.3 bn tranche, will take place every six months, until the program comes to an end in fall of 2026, Hollar added.

To ensure loan disbursement: “At each individual review, the expectation is that the conditions that we're seeing now in the market are going to continue to hold, in the sense that we do not see a return to a system of FX rationing and lack of FX availability,” Hollar said.

FDI secured, now what? The IMF will keep its eyes peeled as to how authorities manage recent inflows, Hollar explained, adding that policies to ensure maximum gains from these inflows will be discussed during upcoming reviews.

More cuts to energy subsidies are needed: “The commitment under the program is to continue reducing [energy subsidies] using the fuel price adjustment mechanism that has been proposed by the authorities in favor of using some of those resources to better target the resources that are going to households which need additional income support,” Hollar said.

Egypt had originally planned to eliminate energy subsidies by the end of the fiscal year 2018-2019, but has been prolonging the phase-out process ever since. The government hiked electricity prices for households and businesses at the start of 2024 by 16-26%.

The Madbouly government raised fuel prices by 8.0-21.2% last month. The increases came in line with promises made by Egypt to the IMF over a year ago as part of the financial support agreement, when the government said it would allow fuel prices to rise to bring domestic prices in line with international energy markets.

More private sector involvement is crucial: Hollar highlighted the significance of having reforms that “strengthen the capacity of the private sector to operate in this environment and have the private sector be the engine of growth.”

ICYMI- The IMF and Egyptian authorities agreed on the expansion of the program last month after floating the EGP and enacting a jumbo 600-bps interest rate hike.

More to come: The loan review scheduled for June will also discuss the USD 1.2 bn long-term, low-cost climate financing Egypt plans on applying for under the IMF's Resilience and Sustainability Facility, Hollar said. “To qualify, countries need to have in place a strong set of policies that are intended to address the bases of climate change," she added.

MEANWHILE- No more rate hikes from the CBE? “I believe we’ve reached the peak of interest rates,” Cairo Capital Securities Chief Economist Hany Genena told Al Arabiya Business (watch, runtime: 5:40). “No further monetary tightening is needed,” he explained, pointing to the CBE using macroprudential tools, alongside the 600-bps rate hike.

The IMF disagrees: “The Central Bank should stand ready actually to tighten if we see inflation pressures to continue,” Hollar said.

** More to come: The IMF will publish its staff report on Egypt in the coming days.

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