IMF Hails Continuous Economic Improvement in Egypt

The International Monetary Fund (IMF) has hailed the economic situation in Egypt thanks to economic reforms and measures taken by the government.

Speaking following the IMF Executive Board discussion on Egypt, David Lipton, First Deputy Managing Director and Acting Chair, said that the economic situation has continued to improve during 2018.

"Strong program implementation and generally positive performance has been instrumental in achieving macroeconomic stabilization, with external and fiscal deficits narrowing, inflation and unemployment declining, and growth accelerating," said Lipton in a press release.

"The near term growth outlook is favorable, supported by a recovery in tourism and rising natural gas production, while the current account deficit is expected to remain below 3 percent of GDP and the public debt ratio to decline markedly by 2023," he added.

Lipton lauded the monetary tightening in 2017 as it helped anchor inflation expectations after the devaluation and fuel price hikes in 2016.

"The Central Bank of Egypt should maintain its restrictive stance to contain second round effects of fuel and electricity price increases, with future policy changes guided by inflation expectations and demand pressures. Exchange rate flexibility is critical to safeguard competitiveness and help cushion against external shocks," he said.

The authorities' fiscal consolidation plan remains on track, and this year’s surplus target appears likely to be met. The ongoing energy subsidy reform is critical to support fiscal consolidation and encourage more efficient energy use, and next year’s budget continues to replace poorly targeted energy subsidies with programs that support poor household," he added.

He pointed out that "The recently approved automatic fuel price indexation mechanism, once implemented, will also help safeguard the budget from unexpected changes in the exchange rate and global oil prices, and ensure that fiscal resources are available to support the most vulnerable".

"A more inclusive private sector led growth model is essential to absorb the significant increase in the labor force expected over the next five years. The expanded structural reform agenda under the authorities' reform program aims to address key impediments to private sector development, including steps to enhance transparency in industrial land allocation, strengthen competition and public procurement, improve transparency and accountability of state owned enterprises, and tackle corruption," he said.

Lipton said that external risks have increased in recent months, with a shift to capital outflows as tightening global financial conditions have contributed to a pullback by investors from emerging markets.

"The healthy level of foreign reserves and flexible exchange rate leaves Egypt well positioned to manage any acceleration in outflows, but this reinforces the importance of a sound macroeconomic framework and consistent policy implementation," he said.