IMF Poised to Embrace Egypt's Economic Appeals: Experts

Some economists and financial consultants told Ahram Online they expect the International Monetary Fund (IMF) to respond favourably to Egypt’s requests, potentially reconsidering the timeline for economic reforms that have adversely affected Egyptian citizens.

They expected such a response despite IMF Managing Director Kristalina Georgieva's emphasis that it is better for Egypt to undertake reforms sooner rather than later.

During the launch of the second edition of the Global Congress on Population, Health and Human Development (PHDC'24), President Abdel-Fattah El-Sisi instructed the government to reassess Egypt's economic reform programme with the IMF to mitigate its impact on the citizens amid ongoing economic challenges.

Similarly, Prime Minister Mostafa Madbouly announced that Egypt would begin reevaluating the timings for economic reforms in collaboration with the IMF.

Experts insights Hossam Elghayish, Director of the Financial and Economic Consulting Department at Awraq Group, and Ahmed Ghonim, an economics professor at the Faculty of Economics and Political Sciences at Cairo University, anticipated that the IMF would address a significant portion of Egypt's requests.

Elghayish explained that this expectation is based on the possibility of implementing measures that may not heavily impact citizens or the government.

These measures include enhancing private sector participation and the government's withdrawal from certain activities or shares in specific companies, particularly those linked to the National Investment Bank.

He added that this might also involve offering or selling specific assets from private companies or those associated with the Ras El Hekma deal.

Elghayish believes such steps could enable the Egyptian government to take more substantial and expedited actions to reduce the gap between the debt level and the continuation of its economic reform programme with the IMF.

Conversely, Ghonim asserted that Egypt could reduce the financial gap by expanding and accelerating the offerings programme and launching initiatives to boost exports and attract investment.

Moataz Yeken, Chief Economist at LYNX Strategic Business Advisors, predicted that the Egyptian government would request the IMF to extend the timings for phasing out subsidies on energy, including fuel and electricity, and avoid rushing the implementation of the cash subsidy programme.

Furthermore, Yeken predicted that the government would opt to take a gradual approach to reducing subsidies on essential goods, particularly bread.

In related news, Egypt raised fuel prices for the third time on 18 October. This is the most recent increase in 2024.

Moreover, Yeken emphasized that by enticing Egypt to liberalize fuel and electricity prices, beginning in 2014, the IMF was advocating complete market-driven pricing of goods. This transition, however, poses economic challenges to the average Egyptian citizen due to the private sector's limited ability to create jobs and the insufficiency of non-oil exports, both crucial for liberalizing basic goods like food and fuel.

Impact of Global Dynamics on Egypt's Economy "Due to geopolitical tensions, the IMF may lower debt interest rates, especially as the fund considers the challenges faced by countries affected by tensions in the Middle East, the Russia-Ukraine war, and climate change issues in South America," Elghayish stated.

Yeken, in turn, noted that Egypt could use the financial burden on its economy of hosting millions of refugees from civil wars and armed conflicts as leverage to convince the IMF to extend the timings for economic reforms.

He also cited the reduction in Egypt's revenues, estimated by many to be up to 70 percent, from the Suez Canal and other external shocks to the Egyptian economy due to increasing political tensions.

For his part, Jihad Azour, Director of the Middle East and Central Asia Department at the IMF, stated that Egypt is somewhat affected by escalating tensions from regional conflicts, which primarily impact revenues from the Suez Canal.

Azour highlighted two levels of impact: the direct consequences of these regional conflicts and the broader uncertainties that affect Egypt, particularly in terms of attracting direct investments and capital inflows.

Dilemma of the Fourth Review Ghonim anticipates that the fourth review may not occur as scheduled, predicting it will occur only after a compromise is reached with the IMF regarding the pace of reforms.

In contrast, Elghayish expects the fourth review to proceed as planned after negotiations, with the possibility of replacing or postponing certain items for several months, particularly those directly impacting citizens or commodity prices, in order to achieve a balance between inflation and Egypt's ability to meet its obligations.

The IMF will commence the fourth review of Egypt's Extended Fund Facility (EFF) loan programme in November.

According to the EFF loan programme timeline, the review is scheduled to conclude in December and the entire programme in September 2026.

Egypt is currently under a $8 billion Extended Fund Facility (EFF) loan programme with the IMF.

According to the IMF's Global Financial Stability Report released, Egypt has experienced positive net portfolio flows in recent months, with substantial investments in local currency bonds, even amid ongoing debt challenges and high inflation.

In its World Economic Outlook report released Tuesday, the IMF revised its GDP forecasts for Egypt, projecting growth of 2.7 percent for FY2023/2024 and 4.1 percent for FY2025/2026.