To keep the International Monetary Fund’s fifth loan disbursed on schedule in early July, the fund is open to relaxing some of its conditions, a senior government official told EnterpriseAM. With the international lender’s conditions for Egypt to pass its fifth review of the Extended Fund Facility Arrangement agreed way before the war between Israel and Iran, they are considering easing certain requirements in light of a more unpredictable and challenging economic climate for us to unlock the USD 1.3 bn tranche.

REMEMBER- An IMF mission wrapped up a two-week visit to Egypt last month by stating that the country had made “good progress on the assessment of economic performance and implementation of policy commitments.” The two-sides have since continued their discussions regarding policies and reforms virtually, paving the way for the completion of the fifth review later down the line.

Our source told us that the rising cost of fuel imports could affect petroleum subsidies in both the current and upcoming fiscal budgets. They noted that it is still too early to predict the implications of the Israel-Iran escalations on the Middle East, but oil prices will undoubtedly have repercussions on the global economy as a whole. We may see oil prices surge to around USD 100 per barrel — which could drive petroleum subsidy allocations beyond the EGP 154 bn allocated in the government budget, possibly exceeding EGP 200 bn by the end of the fiscal year — especially with the added pressure of currency fluctuations, the source added.

The government has two options on the table to address rising energy prices, by either increasing petroleum product prices to help close the widening price parity gap between market prices and subsidized prices for consumers, or it will have to extend the timeline for phasing out subsidies — a scenario the IMF might oppose, the source said.

“There should be room to be flexible “as long as the program's fundamentals are adhered to,” Al Ahly Pharos’ head of research Hany Genena told EnterpriseAM. “Current events may support a potential Egyptian government negotiation with the International Monetary Fund to establish a more gradual schedule for raising gasoline, dollar, gas, and electricity prices,” he explained.

But previous falls in oil prices could help cushion the blow, with Brent crude still just about in the red both YTD and over the past 12-month period, the senior government source told us. This has bolstered expectations that any price hikes by the end of 2025 will remain limited.

The government’s timeline for its privatization program could also fall victim to regional escalations. Our source told us that they expect the Finance Ministry's plan to list 11 companies under the government’s privatization program to 2Q 2025 if regional escalations continue on the back of the effect it will have on investor sentiment — particularly from outside the country.

The crisis could also push up interest rates — and consequently public debt servicing costs, the government official added. If interest rates rise and foreign investors partially exit the domestic debt market, the state budget would come under further strain.

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