Egypt files its reform credentials ahead of IMF’s last review

The government has submitted updates to the IMF on its structural reform package ahead of the Fund’s mission arriving on 15 June, three senior government officials tell EnterpriseAM. The mission will conduct the combined seventh and eighth reviews of Egypt’s Extended Fund Facility — expected to unlock USD 3.3 bn in disbursements plus tranches linked to the Resilience and Sustainability Facility — as the program enters its final seven months.

The real question: will the reforms hold once the program ends? The package is designed to demonstrate that the reforms are durable, not just sufficient to clear the current review, ensuring the system can weather future shocks without leaning heavily on external bailouts.

The SOP was rewritten… again. The State Ownership Policy — the cornerstone commitment on a state exit from a number of economic sectors — has been overhauled for the third time. The government has scrapped the previous 35-company divestment list — a revision of an earlier list — in favor of a larger asset pool, and revised the sector exit ratios. The IMF has accepted that regional pressures have slowed execution, our sources tell us, but the Fund “wants to ensure that the exit in favor of the private sector remains a core pillar of the structural reform agenda before the program’s end.”

The fiscal math is tight. The government is targeting a 5% primary surplus by FY2026/27, which requires an additional 1% of GDP in consolidation. The shortfall is partly structural — Suez Canal revenues have dropped sharply, and the hole has to be plugged somewhere. The answer is a 30% increase in tax revenues next fiscal year, our sources tell us, driven primarily by VAT exemption cuts rather than higher rates. Government entities will also lose the tax perks that have given them a competitive advantage over private-sector rivals — a long-standing IMF demand the gov’t has fallen short on.

What the IMF’s own scorecard says: The Fund noted in its last review that the government has delivered on primary surpluses — but the other two pillars of its debt strategy, divestment and maturity lengthening, have stalled. Interest payments are consuming roughly 73% of government revenues. The Fund’s verdict was that debt is sustainable, but not with high probability.

Energy pricing is being restructured — not just reduced. The government is tying natural gas prices for industrial users to an international pricing formula, converting what has been an administered price into a rules-based mechanism. As a result, the energy subsidy bill will drop from EGP 75 bn to EGP 15.8 bn. For the IMF, this is one of the criteria to ensure the stability of indicators while phasing out energy subsidies, our sources tell us.

What’s next: The government aims to cut its gross financing needs by 9-11% of GDP over the next two years. To pull this off, the Finance Ministry is extending debt maturities and locking in concessional, low-interest funding to offset our high domestic borrowing costs. But hitting those targets will require a more ambitious strategy on extending maturities and cutting interest costs than what's currently on the table, the Fund noted in the last review.