The International Monetary Fund (IMF) has drafted a comprehensive strategy to enhance Egypt’s macroeconomic stability and promote private sector growth in Egypt. The plan outlines four elements, which are monetary and fiscal policy tightening, flexible exchange rate, targeted budget support for households, and balancing the roles of the public and private sectors.
In December 2022, the IMF approved a 46-month arrangement fund to Egypt worth USD 3 billion (EGP 145.7 billion), which was later increased to USD 8 billion (EGP 388.7 billion) in March 2024.
Egypt’s economy has been struggling for years with inflation. In January 2022, one USD cost EGP 15.7, and one year later, it cost EGP 29.8. In 2022, Egypt’s gross domestic product (GDP) recorded a deficit of 6.1 percent and in 2023, it decreased by one percent, recording 7.1 percent.
Egypt’s external debt was USD 224.7 billion (EGP 10.9 trillion) in 2022, USD 308.15 billion (EGP 14.9 trillion) at the beginning of 2023, and it is expected to be USD 404.1 billion (EGP 19.6 trillion) by the end of 2024, which is a 31.14 percent increase from last year.
Egypt manages its external debt by selling bonds on the international financial markets, receiving loans and investments from Gulf states, and the IMF loan. The macroeconomic challenges the country is facing are complex and the IMF has four goals to guarantee its stability and growth.
One goal is to shift the flexible exchange rate system in Egypt’s domestic economy and have a unified exchange rate. The exchange rate was managed by the Egyptian government, which resulted in a lack of foreign currency in the country and the emergence of a parallel market.
The first step to achieve this goal is to let the Egyptian pound’s value be determined independently in relation to other currencies and make foreign currency available to everybody at the same exchange rate.
The IMF stated that this is expected to help Egypt’s economy and make it adaptable to external economic events, support Egyptian companies with international business, and invite more investments.
Monetary and fiscal policy tightening is another goal the IMF has for Egypt, which entails lowering inflation, halting the decline in purchasing power, particularly affecting lower and middle-income families, and sustaining debt levels. It also aims to control off-budget capital spending and manage significant capital inflows cautiously to manage inflation and prevent future external risks.
Egypt agreed to maintain fiscal prudence over the medium term and step up efforts to mobilize additional domestic revenues, including through the rationalization of tax exemptions as well as to use a substantial part of divestiture proceeds to reduce debt, according to Ivanna Vladkova Hollar, the IMF Mission Chief for Egypt.
The plan to manage Egypt’s high inflation surges and its impact on purchasing power includes providing budgetary assistance to low-income and vulnerable households and ensuring adequate budget allocation.
According to Hollar, the Egyptian government agreed on the need to provide adequate levels of social spending to protect vulnerable groups, and the expansion of the social protection program, Takaful and Karama, cash transfer program in 2023.
On 7 February, Egypt’s State Information Service reported that EGP 180 billion (USD 3.7 billion) has been added to the social protection program package, a 50 percent increase in minimum wages, as well as a 15 percent increase in pensions, with EGP 41 billion (USD 843.6 million) allocated for FY2024/2025.
Another objective that the IMF plans to achieve with its arranged fund is to balance the power between public and private sectors in Egypt, encouraging private investors to drive growth and reducing the government’s involvement in the economy
The target includes simplifying investment procedures for companies, improving governance and anti-corruption measures, and achieving independence of the Egyptian Competition Authority. Additionally, this means continuing to follow the State-Ownership Policy and executing an asset divestment program, that could boost private companies and investors to contribute effectively to the economic growth of Egypt.
Egypt’s economy is expected to improve in FY2024/2025, according to Egypt’s Minister of Finance, Mohamed Maait.
“These projections stem from the private sector’s pivotal role in supporting economic growth and the government’s concerted efforts to create a favorable environment for both local and foreign private investments,” he added.
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