The IMF mission headed by Ivana Vladkova Hollar held personal discussions with the authorities during the period from 6 to 20 November in Cairo.
At the conclusion of the visit, Vladkova Hollar issued the following statement:
“The Egyptian authorities and IMF staff have made significant progress in policy discussions towards completing the fourth review under the Expanded Fund Facility.
Discussions also covered Article IV consultations with a focus on challenges and opportunities in the medium term, as well as additional reform measures that could help reduce critical macroeconomic risks associated with climate change in support of Egypt’s request for access to facilitate resilience and sustainability.
“With multiple ongoing geopolitical tensions in the region, the economic outlook for the region, including Egypt, remains challenging and the fallout from the conflicts in Gaza and Israel and trade disruptions in the Red Sea continues to negatively impact sentiment and cause significant declines of up to 70 percent in Canal revenues. Suez, which is an important source of foreign currency for Egypt. In addition, the increasing number of refugees adds to financial pressures on public services, especially health and education.
“In this difficult external environment, the authorities have implemented major reforms to maintain macroeconomic stability.
The unification of the exchange rate since March has eliminated the backlog of demand for foreign exchange and eased imports.
The central bank reiterated its commitment to maintaining a flexible exchange rate regime to protect the economy from external shocks. In addition, tightening monetary policy has helped significantly contain inflationary pressures, although progress has been temporarily constrained by increases in administrative rates. Going forward, the focus should remain on ensuring that inflation continues on a steady downward trend towards the medium-term target.
Continued fiscal discipline also contributes to reducing vulnerabilities associated with public sector debt. At the same time, as agreed with the Egyptian government, greater efforts will be needed to mobilize domestic revenues, contain financial risks (especially those arising from the energy sector), and expand the social safety net.
“Promoting private sector development as a key driver of future growth is key to ensuring sustainable macroeconomic stability, creating job opportunities, and unleashing Egypt’s economic potential for the benefit of all Egyptians.
In this context, we welcome the comprehensive plans developed by the government to simplify the tax system, improve customs procedures, and facilitate trade.
Based on these steps, the mission encouraged the authorities to accelerate their divestment plans and accelerate reforms in order to level the playing field and reduce the country’s footprint in the economy.
“The mission and the government agreed that tax policy reforms will help Egypt succeed in its efforts to mobilize domestic revenues, and generate sufficient fiscal space to finance much-needed spending programs (particularly in health, education, and the social safety net) while reducing debt and debt service.
These reforms should also aim to improve tax fairness and broaden the tax base, with an emphasis on reducing exemptions rather than increasing tax rates.
The mission and the government also agreed on the importance of strengthening the social safety net (particularly the conditional cash transfer programme) to help protect vulnerable groups from the rising costs of living and recent energy price increases, as well as mitigate the impact of stringent policies.
Discussions will continue over the coming days to complete agreement on the remaining policies and reforms that will support the completion of the fourth review.
