Egypt could receive another USD 820 mn tranche in June

IMF greenlights expedited access to funding unlocked by upcoming third review: Egypt could receive USD 820 mn from the International Monetary Fund from June 15 onwards — shortly following the Fund’s third review of our loan program in the same month — after the Fund agreed to “to better align access with review cycles under the program,” according to a country report (pdf) from the Fund on Friday.

Remember: The IMF’s Executive Board signed off on a USD 5 bn extension for Egypt’s extended fund facility and completed its long-delayed first and second reviews of the facility in late March, when it approved a decision to let the state draw USD 820 mn. Egypt received an initial tranche of USD 347 mn in December 2022.

When will the next tranches be disbursed? Egypt will have access to five tranches of around USD 1.2 bn each if it passes reviews in September 2024, March 2025, September 2025, March 2026, and September 2026, according to the proposed schedule in the IMF’s report.

The country met 7 of the 15 structural benchmarks put forwards by the Fund: Policymakers managed to discard the use of letters of credit, publish a state-ownership policy, amend competition law with regard to M&As, widen the scope of social protection programs to include more households, list tax policy measures for the FY 2023-2024 budget draft, prevent exemptions to banks breaching net FX open position limits and hit the brakes on launching new subsidized loans that are backed by the CBE.

But the Fund still wants us to make progress on publishing public procurement contracts exceeding EGP 20 mn on the government’s e-tenders website, keeping the mechanism used in the retail fuel pricing up to date, ensuring the timely publication of audit reports on fiscal years, releasing comprehensive reports on tax expenditure, implementing executive regulations of the public finance management law, and reporting payment arrears by the Finance Ministry.

Two of the targets were dropped by the IMF: The adoption of a risk-based approach to customs procedures and the acceleration of the release of goods at the Alexandria port was dropped as a target by the Fund, as was the digitalization of real estate records to include geo-coded identifiers to facilitate property taxation. The fund said that they are no longer critical for the current program.

The Fund thinks we may be on the verge of finalizing stake sales of the Gabal El Zeit and Zafarana wind farms: The IMF is anticipating that the state will wrap its stake sale for the Gabal El Zeit wind farm in the current fiscal year and thinks the sale could bring in USD 339 mn. The Fund also thinks the state is nearing the stake sale of either the Zafarana wind farm or a desalination plant that could bring in USD 300 mn.

Even with a rush of fresh funds coming in, the Fund is still penciling in a big financing gap: The IMF estimated the country’s financing gap at USD 28.5 bn for the remainder of the loan program by 2026 when taking into account the inflows from the Ras El Hekma agreement.

Closing the gap is going to be difficult with arrears to pay: The state-owned oil firm Egyptian General Petroleum Corporation owes external arrears of between USD 4-5 bn, the fund said, adding that lower gas production amid higher domestic demand impeded the company’s exports.