Frequently Asked Questions on Egypt and the IMF

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What are the main elements of the IMF supported program with Egypt?

The Egyptian economy faces significant macroeconomic challenges that have become more complex to manage with the conflict in Gaza and Israel, and the disruptions in the Red Sea. The IMF supported program with Egypt, which was approved in December 2022, remains centered on four key goals to ensure macroeconomic stability and secure private-sector-led growth: 

• A sustained shift to a flexible exchange rate system that will help Egypt’s domestic economy adjust more smoothly to external shocks, support the ability of Egyptian businesses to sell their goods and services abroad, and encourage greater investment.
• Monetary and fiscal policy tightening, including through containing off-budget capital expenditure, are needed to reduce inflation and maintain debt sustainability. Managing large capital inflows prudently will be important to contain inflationary pressures and limit future external vulnerabilities.
• In recognition of the significant adverse impact high inflation has on purchasing power, targeted budget support to vulnerable households is warranted and budget space for such support needs to be protected.
• Better balancing the roles of the public and private sectors, with a focus on enhancing competition and allowing a greater role for the private sector in driving growth. This can help create more jobs and opportunities for everyone, particularly young Egyptians.

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Why is exchange rate flexibility important for Egypt?

• In the past, a heavily managed exchange rate has not served the Egyptian people well. It has led to periods of building imbalances, lack of foreign currency, rationing, and sudden drops in the value of the Egyptian pound. These abrupt devaluations have led to spikes in inflation and undermined economic activity, as investor confidence has been dented.
• An objective under the Fund-supported program is, therefore, to achieve a sustained shift to a flexible exchange rate regime whereby the value of the Egyptian pound would be determined freely against other currencies. Under this framework, one would observe two-way movements in the exchange rate, as it appreciates or depreciates smoothly in line with economic conditions. As an important step in this direction, the Egyptian authorities unified the official and parallel market exchange rates and made foreign exchange (Foreign Exchange) available to everybody at the same exchange rate.
• Flexibility in the exchange rate would bring several benefits. It would help Egypt’s domestic economy adjust more smoothly to external shocks, support the ability of Egyptian businesses to sell their goods and services abroad, and encourage greater investment by reducing the likelihood of large abrupt changes in the exchange rate. In addition, it would help preserve the financial buffers of the central bank.

Learn more about what we mean about foreign currency liberalization in this video.

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How does the program protect Egypt's vulnerable households?

Safeguarding macroeconomic stability and fighting inflation are key to ensuring prosperity for all Egyptians, particularly the most vulnerable. In this regard, monetary policy under the program is focused on bringing down inflation and stemming the erosion in purchasing power that disproportionately affects poor and middle-class families. Given the significant impact of high inflation on the purchasing power of low- and middle-income households, expanding targeted budget support to vulnerable households is warranted and budget space for such support needs to be protected. In this regard, coverage of the Takaful and Karama cash transfer program has been expanded to cover more than 5 million households and the authorities announced a broad EGP180 billion social protection package in early-2024, which included an increase in the public sector minimum wage and specific support to teachers and healthcare workers. Over the medium term, progress on a wide-ranging structural reform agenda will help Egypt achieve higher, sustainable, and more inclusive, private-sector-led growth.

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What measures in the program support development of the private sector?

The continued implementation of the State-Ownership Policy and rollout of the asset divestment program will play a critical role in reducing the state footprint and strengthening the ability of the private sector to better contribute to economic growth in Egypt. Complementing this, efforts to strengthen the independence of the Egyptian Competition Authority, streamline procedures companies face when investing in Egypt, and to further improve governance and anticorruption measures will be important in creating an attractive business environment that supports growth.

How is the conflict in Gaza and Israel and disruptions in the Red Sea affecting Egypt? 

Both tourism and Suez Canal receipts are important sources of foreign exchange for Egypt. Tourism receipts reached US$13.6bn during FY 2022/23 and Suez Canal current account receipts averaged over US$700 million per month prior to the disruptions in the Red Sea.

Despite some moderation, tourism is holding up reasonably well in challenging circumstances, with bookings at similar levels to a year ago.

However Red Sea disruptions are impacting Foreign Exchange flows, could deter tourism, and through their impact on trade could result in shortages and add to inflationary pressures. Suez Canal receipts declined by more than half in first six months of 2024 relative to the same period in 2023.

 What is the potential impact of the debt on the state budget?

The economic strategy under the program is focused on reducing Egypt's debt by putting the general government debt-to-GDP ratio on a downward path. This is expected to be achieved through continued fiscal discipline, while ensuring adequate social protection spending, and use of divestment proceeds.

More revenue mobilization will be key to help support this effort as it will help creating space for priority spending and for targeted support for the vulnerable.  Proceeds from the ongoing state asset divestment program will help reduce public debt further.  

What is the IMF doing to promote greater transparency over policies in Egypt?

The IMF-supported program has a number of measures to promote greater fiscal transparency. Transparency helps governments obtain an accurate picture of their finances when making economic decisions, including of the costs and benefits of policy changes and potential risks to public finances. It also provides legislatures, markets, and the public with the information they need to hold governments accountable. Greater fiscal transparency can also help strengthen the credibility of a country’s fiscal plans and can help underpin market confidence and market perceptions of fiscal solvency. The authorities have committed to a significant number of concrete measures in this area, including:

• Significant steps to better monitor and control on-and off-budget public sector investment. The Prime Minister has issued a decree that requires all public entities to report annual projected and executed investment spending and specifies target ceilings on the value of total public investment that will be monitored under the program through an indicative target.
• Introducing a binding requirement to ensure the timely publication of audit reports on fiscal accounts by the Central Auditing Organization (CAO);
• Publication of all public procurement contracts that exceed EGP 20 million on the procurement portal website, also available here;
• Publication of all procurement contracts and awards made by the largest 50 state-owned enterprises on the procurement portal website;
• Publication of a comprehensive annual tax expenditure report including details and estimates of tax exemptions and tax breaks;
• Publication of reports on payment arrears by the Ministry of Finance.

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How will the economic reforms help the middle class and Egyptian families?

Steadfast implementation of the reform package underlying the program is critical to restoring macroeconomic stability and investor confidence, and will pave the way for higher, private sector led growth. These reform efforts can help benefit the middle class and Egyptian families in the following ways:

• Bringing down inflation will dampen increases in the cost living and allow households to consume and save more;
• More efficient public spending, such as reducing untargeted energy subsidies and excessive public investment, will allow for public resources to be reallocated to crucial public services including on health and education; and
• Business sector reforms to level the playing field between publicly and privately owned businesses can stimulate economic competition and innovation. This will generate more opportunities for entrepreneurs, small and medium enterprises and jobs for Egyptians particularly young people.

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What is the IMF advice on fuel and electricity subsidy reforms?

While subsidies are intended to keep prices low for all consumers, but they come at a substantial cost and are not a good use of scarce public resources. Subsidies are not well targeted at the poor (often benefiting higher income households more), have sizable fiscal consequences (leading to higher taxes/borrowing or lower non-subsidy spending to finance subsidies), promote inefficient allocation of an economy’s resources (hindering growth), and encourage pollution (contributing to climate change and premature deaths from local air pollution). Fossil fuel subsidy removal would also reduce energy security concerns related to volatile fossil fuel supplies.

Energy subsidies have increased in recent years as retail energy prices have not kept up with the increase in the cost of energy production. Ensuring the gradual, transparent, and full increase in retail fuel and electricity prices is important to prevent the reemergence of large untargeted subsidies and create much-needed fiscal space for enhancing social transfers targeted to the vulnerable groups. In addition, energy prices that reflect the cost of production can be supportive of investment in Egypt’s energy sector to meet increasing energy demand and thereby avoid electricity shortages.

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What is the State Ownership Policy (SOP)?

The State Ownership Policy (SOP) is an integrated package of objectives and policies to guide state ownership of assets and strengthen the role of the private sector in the economy. The policy encompasses companies owned by the public sector, public business sector companies, economic authorities, public holding companies, companies affiliated with the armed forces and operating in the economic field, and assets owned by other public entities. The policy defines the criteria to be used for determining whether a sector is strategic, explains how each sector is assessed against these criteria, and lists the sectors from which the public sector will divest or partially divest. The policy states the government will be guided by the OECD “Guidelines on Corporate Governance of State-Owned Enterprises” in governing assets that retained by the state. The policy also includes a commitment to competitive neutrality to encourage investment and innovation, following best practices and principles.