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Third review complete: The IMF Executive Board has completed the third review of our USD 8 bn loan program, enabling the Madbouly government to “immediately draw” the USD 820 mn third tranche, the multilateral lender said during the early hours of today.
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Egypt and the IMF reached a staff-level agreement on the third review early last month and we have been waiting for the Fund’s executive board to sign off on it since. The board was originally scheduled to discuss the third review on 10 July but the discussion was pushed back to “finalize some details” and it is thought that the it was pushed back for the board to see how the newly sworn-in government would approach trimming fuel subsidies — the government raised fuel prices for the second time this year on Thursday.
We’re on the right track: “Inflationary pressures are gradually abating, foreign exchange shortages have been eliminated, and fiscal targets were met” since the board approved the combined first and second reviews of the program in March, the statement read.
But there’s still one key area that needs to be targeted: While there has been considerable progress on key structural reforms, “greater efforts are needed to implement the State Ownership Policy,” the Fund said. This includes accelerating the state’s privatization program, as well as “pursuing reforms to streamline business regulations to set up new firms, expediting trade facilitation practices, and creating a “level playing field” that avoids unfair competitive practices by state-owned companies.” Such steps will put Egypt on the track towards private-sector-led growth.
Remember: The IMF in February seemed to calm its tone on the urgency of Egypt’s need to progress its sales of state-owned assets prior to its announcement of our expanded USD 8 bn loan program, representing a shift from the IMF's earlier position on Egypt's need to pick up the pace of privatizing state-owned companies. The government proceeded to slash its 2024 privatization program targets in April, with plans to raise around USD 1 bn through the privatization of state-owned companies and assets this year — a significant drop from previous estimates of USD 6.5 bn.
No slowing down on cutting fuel subsidies: The IMF expects Egypt to restore energy prices back to their “cost recovery levels” by December 2025, which it says will be essential in “supporting the smooth provision of energy to the population and reducing imbalances in the sector.”
Already part of the plan: Prime Minister Moustafa Madbouly had previously said that we could see more fuel price hikes as the state looks to “restore balance” between cost of production and end price by the end of 2025.
The prescription: Implementing the structural reform agenda — one that boosts tax revenues and better manages debt — is “key to achieving more inclusive and sustainable growth.” And to boost private investment, the state should focus on “enhancing the governance of state-owned banks, advancing the state-ownership policy, increasing fiscal transparency, and leveling the economic playing field.”
Regional unrest necessitates the continued implementation of program commitments: Implementing the “appropriate macroeconomic policies, including a flexible exchange rate regime, would help ensure economic stability” despite regional conflicts And advancing with the structural reform program will improve growth prospects.
When will the next tranches be disbursed? Egypt is set to have access to five tranches ofaround USD 1.2 bn each if it passes reviews in September 2024, March 2025, September 2025, March 2026, and September 2026, according to the original schedule of reviews the IMF had shared back in April. It remains unclear if the September 2024 review is still happening according to schedule.
Even more funds to come: Negotiations are underway for Egypt to access an additional; USD 1.2 bn in long-term, low-cost climate financing from the IMF's Resilience and Sustainability Facility. The completion of the third review allows Egypt to apply for the additional climate financing from the Fund.
