How is the IMF’s fifth review of our loan program unfolding?

An inside look into the IMF’s mission to Egypt: Government meetings with the International Monetary Fund (IMF) mission currently in Egypt to conduct its fifth review of the Extended Fund Facility Arrangement have been heavily focused on structural reforms that ensure the sustainability of what has already been achieved in terms of growth and debt reduction, a government source told EnterpriseAM. The Fund is looking to ensure the stability of the government’s general budget in the face of any changes that may take place in the global scene, the source added.

ICYMI- A team from the IMF arrived in Cairo late last week, and its agenda includes meetings with officials from the central bank, and the finance, investment, and international cooperation ministries. Once the mission reviews and analyzes the data, a full IMF delegation will arrive to complete the review and issue its report on whether Egypt has passed the fifth review, which will be submitted to the IMF’s Executive Board for approval, bringing in some USD 1.3 bn into state coffers.

The IMF wants to see some improvements on the privatization front: Among the Fund’s demands is an accelerated implementation of the state ownership policy, and having the state adhere to a timetable for its exit from economic sectors in line with percentages in the IMF-approved document.

Why it matters: The Fund wants to see Egypt secure its FX needs through clear USD inflows that can ensure the stability of the exchange rate in the face of any global shocks, the source said.

Recent external challenges represent a “test” for the economy: While the Fund expressed its understanding of the recent changes affecting the region and the world at large — and their direct and in-direct repercussions on Egypt’s economy — it indicated that it sees these challenges as an opportunity to assess the resilience of Egypt’s economy after it made significant headway in its reform program.

What the Fund is looking for: Resilience and the sustainability of growth and the government’s targets were cited as the main criteria for the fifth review of our program with the IMF. The government’s debt ceiling and its investments are among the main points of the discussion, the source added, saying that the Fund wants to ensure that the budget does not once again become overly involved in implementing public investments, and that it wants to see more public-private partnerships instead.

REFRESHER- The state set a cap of EGP 1 tn on public investments for all state entities, which then-Finance Minister Mohamed Maait said would help create “space for the private sector and increase its investments in the economy.” The government also set a ceiling for its public debt, through which it aims to protect the budget from slipping into a wide deficit.

As for subsidies, the situation is currently more stable in light of global price levels for basic commodities — and could remain so if the prices of food and fuel remain at their current levels for a longer period this year, the source said.

REMEMBER- The government cut down on fuel subsidies once again last month when it raised prices by 11.8-14.8%. This came shortly after Prime Minister Moustafa Madbouly reiterated the country’s intention to have energy prices reach cost recovery levels by the end of the year by phasing out all fuel subsidies in line with its structural reform agenda with the IMF.

Also on the agenda: Investment and tax incentives, as well as foreign financing also saw extensive discussions between officials and members of the Fund's mission, according to the source.

What's next? The results of these meetings will either lead to the conclusion of the fifth review or will see a request for more time and another visit from an IMF mission to conclude the review, the source said. The date for the conclusion of the review and the subsequent disbursement of the USD 1.3 bn tranche is yet to be decided, but it could be agreed upon within the next month, our sources told us last week.