TLTP
WASHINGTON
The International Monetary Fund completed the first review of Egypt’s reform programme paving the way for the North African country to draw $1.67 billion under a stand by arrangement (SBA).
The total disbursement under the 12-month arrangement is now to $3.6bn, the Washington-based lender said in a press sattement on Saturday.
“Egyptian authorities have managed well the Covid-19 pandemic and the related disruption to economic activity,” Antoinette Sayeh, deputy managing director and acting chair of the IMF’s executive board, said. “The proactive measures taken to address health and social needs and to support the sectors most directly affected by the crisis have helped mitigate the economic and human impact.”
In June, the fund had approved a 12-month $5.2bn loan for Egypt to help it cope with challenges posed by the Covid-19 pandemic and finance its budget deficit and balance of payments shortfalls. The approval came with the immediate disbursement of about $2bn to help Egyptian authorities preserve the macroeconomic achievements made over the past four years.
The slow down in economic growth during the pandemic has been “far less severe than expected” with Egypt expected to be one of the few countries to record a positive growth rate in 2020, the IMF said.
The Arab world’s third largest economy is forecast to grow 3.5 per cent this year, while the Mena region combined is set to contract 5 per cent, according to the lender. Inflation in the country is projected to fall to 5.7 per cent this year from 13.9 per cent in 2019, while unemployment will decline to 8.3 per cent from 8.6 per cent.
In addition to government measures aimed at supporting crisis-hit sectors, external market conditions have also improved with a “strong return” of portfolio inflows to Egypt, the IMF said.
However, there are risks to the outlook as the resurgence of the virus heightens uncertainty about the pace of domestic and global recovery, Ms Sayeh said. High levels of public debt and gross financing needs also leave the country vulnerable to global financial volatility.
“Continued strong policy implementation will further strengthen resilience and help maintain investor confidence,” she said.
Looking ahead, the expected economic recovery should allow public debt to resume falling in the 2021-2022 fiscal year and the continued shift towards longer-term debt issuance could mitigate rollover risks, according to the IMF.
“Continued progress on fiscal structural reforms is critical to ensure additional space for high priority spending on health, education, and social protection,” Ms Sayeh said.
The Central Bank of Egypt’s policy of monetary easing in recent months should also further support economic activity and ease appreciation pressures from large capital inflows, which has had a dampening effect on inflation. “Two-sided exchange rate flexibility is essential to absorb external shocks and maintain competitiveness,” she said.
