Cairo, Egypt: An International Monetary Fund mission led by Ivanna Vladkova Hollar held in-person discussions with the authorities during November 6-20 in Cairo. At the conclusion of the visit, Ms. Vladkova Hollar issued the following statement:
"The Egyptian authorities and IMF staff have made substantial progress on policy discussions toward the completion of the fourth review under the Extended Fund Facility (EFF). Discussions also covered Article IV consultations with a focus on medium-term challenges and opportunities, as well as additional reform measures that could help further reduce macro-critical risks associated with climate change in support of Egypt's request to access the Resilience and Sustainability Facility (RSF).
"With ongoing multiple geopolitical tensions in the region, the economic outlook for the region, including Egypt remains challenging. Spillovers from the conflicts in Gaza and Israel and trade disruptions in the Red Sea continue to negatively affect sentiment and cause substantial declines of up to 70 percent in Suez Canal receipts, which are a significant source of foreign currency for Egypt. In addition, an increasing number of refugees is adding to fiscal pressures on public services, especially health and education.
"Against this difficult external environment, the authorities have implemented key reforms to preserve macroeconomic stability. The unification of the exchange rate since March has eliminated the backlog of FX demand and eased imports. The CBE reiterated its commitment to sustain a flexible exchange rate regime to shield the economy from external shocks. In addition, substantial monetary policy tightening has helped contain inflationary pressures, albeit progress has been temporarily restrained by increases in administrative prices. Going forward, the focus needs to remain on ensuring inflation is on a firm downward trend toward the medium-term target. Continued fiscal discipline is also contributing to reducing public sector debt vulnerabilities. At the same time, as agreed with the authorities, further efforts will be needed to mobilize domestic revenues, contain fiscal risks (especially those stemming from the energy sector), and expand the social safety net.
"Promoting private sector development as the main engine of future growth is key to ensure sustained macroeconomic stability, create jobs, and unlock Egypt's economic potential for the benefit of all Egyptians. In this context, the authorities' comprehensive plans to streamline the tax system, improve customs procedures, and facilitate trade are welcome. Building on these steps, the mission encouraged the authorities to accelerate their divestment plans, and to speed up reforms to level the playing field and reduce the state footprint in the economy.
"The mission and the authorities agreed that tax policy reforms will help Egypt succeed in its domestic revenue mobilization efforts, to generate adequate fiscal space to finance much needed expenditure programs (especially in health, education and the social safety net) while reducing debt and debt service. These reforms should also aim at improving tax equity and at widening the tax base, with an emphasis on reducing exemptions rather than increasing tax rates. The mission and the authorities also agreed on the importance of strengthening the social safety net (especially the conditional cash transfer program) to help protect vulnerable groups from the high cost of living and recent energy price increases, as well as mitigate the impact of tight policies.
"Discussions will continue over the coming days to finalize agreement on the remaining policies and reforms that could support the completion of the fourth review."
