Arab Republic of Egypt:Fifth Review Under the Extended Arrangement Under the Extended Fund Facility—Press Release; Staff Report; and Statement by the Executive Director for the Arab Republic of Egypt
Author: International Monetary Fund. Middle East and Central Asia Dept.
Publication Date:
10 Oct 2019
eISBN:
9781513516622
ISBN:
9781513516622
Language:
English
Keywords:
ISCR; CR; authorities' economic reform program; core inflation; private sector; authority; Egypt-IMF Executive Board; interest rate; indexation mechanism; nominal exchange rate; export-led growth; resource allocation
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Fifth Review Under the Extended Arrangement Under the Extended Fund Facility-Press Release; Staff Report; and Statement by the Executive Director for the Arab Republic of Egypt

Abstract

Fifth Review Under the Extended Arrangement Under the Extended Fund Facility-Press Release; Staff Report; and Statement by the Executive Director for the Arab Republic of Egypt

Recent Developments and Program Performance

1. Macroeconomic performance has remained strong in 2018/19, supported by continued sound policy implementation. Real GDP increased by 5.4 percent in the first half of 2018/19, supported by strong growth in natural gas, tourism, and construction, while unemployment declined to 8.1 percent in the first quarter of 2019, the lowest in over a decade. The current account deficit is expected to remain little changed at 2.6 percent of GDP in 2018/19, with Egypt becoming a net exporter of oil and gas in late 2018 for the first time since 2012/13. Headline inflation picked up slightly from 12 percent in December 2018 to 14 percent in May due to increases in food prices, but core inflation remains stable at around 8 percent. The budget is on track to achieve a primary surplus of 2 percent of GDP in 2018/19, in line with the program target, with gross general government debt projected to decline from 93 percent of GDP in 2017/18 to 85 percent of GDP by end-June.

uA01fig01

Contributions to real GDP growth, y/y

(percentage points)

Citation: IMF Staff Country Reports 2019, 311; 10.5089/9781513516622.002.A001

uA01fig02

Auction Yields (percent)

Citation: IMF Staff Country Reports 2019, 311; 10.5089/9781513516622.002.A001

2. Financial market conditions have recovered in 2019 despite continued risks to the global outlook from escalating trade tensions. Portfolio inflows have resumed in 2019 as investor sentiment toward Egypt improved, supporting an appreciation of the Egyptian pound against the U.S. dollar of about 8 percent since the beginning of the year. Treasury bill yields have also declined by about 200 basis points, bringing domestic yields back down toward their levels from early 2018 for maturities of less than one year where demand from nonresidents is focused; the yield curve remains inverted, reflecting expectations of lower inflation over the medium term.

3. Program performance has remained broadly favorable, but progress on structural reforms has been uneven. All end-March performance criteria and indicative targets were met, but a number of structural benchmarks were missed due to delays or only partial implementation reflecting in part capacity constraints. Nevertheless, continued progress in key areas has kept the program broadly on track to meet its objectives. The benchmarks on reaching cost recovery on fuel prices and introducing fuel price indexation were missed but were implemented with delay as prior actions on July 5 and July 6, respectively. The benchmark on development of a plan to restructure the National Investment Bank (NIB) was also missed, to allow a detailed asset review by an international auditor. In the interim, the authorities have introduced measures to strengthen NIB oversight and governance as a prior action. Several other benchmarks were missed: new guidelines for industrial land allocation were approved at end-March but they do not include a market-based allocation mechanism as specified under the benchmark; minority shares were divested through IPOs in one state-owned enterprise by mid-June instead of four; the approval of executive regulations for the new Government Procurement Law was delayed to incorporate comments from the World Bank; and the separation of the regulatory authority for transportation from the Ministry of Transportation (MoT) was delayed due to organizational changes at the MoT. Benchmarks were met on refraining from exemptions for commercial banks to breach net foreign exchange (FX) open position limits; eliminating the FX deposits of the Central Bank of Egypt (CBE) in foreign branches of the Egyptian banks; and launching an e-Procurement portal. The benchmark to approve a plan to align SOE procurement rules with the new law was missed but completed with a slight delay to allow further consultation with the OECD.

Outlook and Risks

4. Continued strong growth will be essential to navigate medium-term demographic challenges. Egypt will need to accommodate an estimated 3.5 million new entrants to the labor market over the next five years, in the context of already high youth unemployment and low labor force participation. The authorities and staff agreed that the growing labor force presents a tremendous opportunity for faster growth, but only if it encounters a strong and vibrant private sector that can productively employ those workers.

5. The medium-term outlook hinges on sustained reform implementation to create an enabling environment for private sector-led growth. In the near term, the increased production of natural gas and ongoing recovery in tourism, as security conditions have stabilized, are expected to support real GDP growth close to 6 percent. As these sectors approach full capacity, increased private investment will be essential to drive productivity improvements and support broad-based growth beyond these areas (Box 1). Staff’s baseline scenario assumes that macroeconomic policies remain prudent to preserve macroeconomic stability and that continued progress on structural reforms facilitates a pickup in other sectors, keeping real GDP growth at 6 percent over the medium term. Inflation is expected to decline to mid-single digits from about 14 percent in 2018/19, while a sustained primary surplus at 2 percent of GDP would help reduce general government gross debt to 70 percent of GDP by 2024.

6. The main risks to the outlook are a shift in global financial conditions or a weakening of reform momentum. The authorities’ prudent policies have been instrumental in strengthening Egypt’s resilience to the elevated uncertainty in the external environment. The high level of public debt and large external gross financing needs leave Egypt vulnerable to a shift in global financial conditions, and a sustained increase in real interest rates could aggravate public debt dynamics. In addition, a loss of momentum on reform implementation due to complacency or opposition from vested interests would weaken the growth outlook. Strong growth in recent years has resulted in a steady decline in unemployment from the peak of 12.9 percent in 2014/15, but should real GDP growth slow toward the 2006–2015 average of 4 percent unemployment would likely return to double digits. Additional risks include materialization of contingent liabilities or a deterioration of the security situation that would disrupt the recovery in tourism. These risks underscore the importance of maintaining sound macroeconomic policies and sustaining reform efforts, particularly as geopolitical competition and rising protectionism increase downside risks to the global outlook.

Egypt: Looking Back: Progress Under the EFF Arrangement

Macroeconomic stabilization. By mid-2016, an unsustainable policy mix had left Egypt facing low growth, elevated and rising public debt, and a mounting balance of payments problem with severe shortages of foreign exchange and an overvalued exchange rate. Egypt’s reform program, supported by the EFF arrangement, implemented a significant policy adjustment anchored by the liberalization of the foreign exchange market and fiscal consolidation to ensure public debt sustainability while protecting the most vulnerable. The authorities’ strong ownership of the program and decisive upfront policy actions were essential in establishing credibility and restoring confidence. These measures were critical in stabilizing the economy: growth has accelerated; current account and fiscal deficits have narrowed; international reserves have risen; and public debt, inflation, and unemployment have declined.

uA01fig03

Gross Official Reserves and Current Account Balance

Citation: IMF Staff Country Reports 2019, 311; 10.5089/9781513516622.002.A001

uA01fig04

Budget Sector Balances and Gross Public Debt

(Percent of GDP)

Citation: IMF Staff Country Reports 2019, 311; 10.5089/9781513516622.002.A001

Structural reforms and growth. The acceleration in growth has been driven in part by tourism and natural gas, but the contribution from these sectors is expected to taper as they get closer to capacity. Against this background, as macroeconomic stabilization took hold the authorities appropriately focused increasingly on long-standing structural impediments to growth and resource allocation in other sectors. The structural agenda was expanded to include reforms to industrial land allocation, strengthen competition and public procurement, and improve governance—including of NIB and SOEs. The initiation of these reforms is an important first step, but the transition to a transparent market-based economy will require further broadening and deepening of reforms and their sustained implementation beyond the current program. The medium-term growth outlook depends significantly on creating an enabling environment for private sector development to accommodate Egypt’s rising labor force. Continued efforts will be needed to improve the business climate, tackle corruption, reduce the role of the state, and enhance non-oil exports.

Policy Discussions

Policy discussions focused on maintaining a sound policy framework while following through on structural reforms to create space for private sector development and sustain strong growth. Staff and the authorities were closely aligned on monetary and fiscal policy objectives and the importance of sustained structural reform implementation to support medium-term growth prospects. Fiscal consolidation to anchor public debt reduction remains on track, supported by the completion of fuel subsidy reform. Monetary policy continues to focus on bringing inflation down to single digits, underpinned by a flexible exchange rate to improve resilience to external shocks. The favorable near-term outlook provides an opportune juncture to advance structural reforms, and staff emphasized the importance of steadfast execution of the reform agenda beyond the current program.

Monetary, Exchange Rate, and Financial Sector Policies

7. Monetary policy remains anchored to the CBE’s medium-term objective of guiding inflation down to single digits. The CBE lowered its overnight deposit rate by 100 basis points in February to 15.75 percent to reflect softer demand-side pressures, but real interest rates remain positive. The monetary policy stance is expected to remain appropriately restrictive to contain possible second-round effects from increases in fuel prices, but sustained disinflation would provide scope for further reductions in the CBE policy rate. Inflation continues to be driven to a large extent by supply side factors that impact domestic food prices, with core inflation relatively well contained. Structural inefficiencies in the domestic agricultural sector contribute to persistent upward pressure on domestic food prices, reflecting low yields, limited storage capacity, poor transport links from rural to urban areas, and encroachment on agricultural land, in the context of rising demand from a fast-growing population. If inflation pressures reemerge, the CBE should stand ready to tighten monetary policy as needed.

uA01fig05

Inflation and Interest Rates

(percent)

Citation: IMF Staff Country Reports 2019, 311; 10.5089/9781513516622.002.A001

8. Exchange rate flexibility has increased, and the level of international reserves remains adequate. The Egyptian pound has appreciated by about 8 percent against the dollar since the beginning of 2019, reflecting in part increased portfolio inflows through the interbank market due to the cancellation of the repatriation mechanism in late 2018 (Box 2). The increased supply of foreign exchange allowed commercial banks to reduce their open positions below the regulatory limits by end-May, while the CBE has also refrained from granting exemptions for commercial banks to breach net FX open position limits. Gross international reserves remain broadly adequate at about 125 percent of the Fund’s Assessing Reserve Adequacy (ARA) metric at end-2018.

uA01fig06

Exchange rate and Non-resident Tbill holdings

(EGP/$ and EGP bn)

Citation: IMF Staff Country Reports 2019, 311; 10.5089/9781513516622.002.A001

9. The CBE intends to gradually move to an interest rate-based monetary policy framework anchored to inflation in the medium term. The draft Banking Law (to be discussed in Parliament in October) defines price stability as the primary objective of monetary policy and strengthens the CBE’s governance, financial structure, operational and institutional autonomy, and the early intervention and resolution framework. To ensure a smooth transition, the CBE will continue to strengthen its analytical and operational capacity, further develop money markets to improve monetary transmission, and continue strengthening its communication strategy (LOI115). This includes regular updates on monetary policy objectives and decisions, and the central bank’s assessment of economic and financial developments. The balance in the government’s overdraft facility with the CBE has been brought below the statutory limit. The mission welcomed the authorities’ decision to issue overdrafts at market interest rates starting from July 1, 2019, but urged them to further reduce its use as it undermines the effectiveness of monetary policy. Staff encouraged the CBE to refrain from any new mortgage lending programs, which extend beyond the central bank’s mandate and undermine monetary policy efficiency and credibility.

10. The authorities have initiated a review of the financial position and future operations of the NIB. NIB maintains significant retail deposits in the form of investment certificates and has a large portfolio of SOE loans but is not subject to banking regulations and supervision. A committee comprising representatives of the CBE, the Ministry of Planning, Monitoring, and Administrative Reform, and the Ministry of Finance was created to strengthen NIB oversight and governance and tasked to develop a plan for reforming and improving its financial performance (LOI ¶11). As a first step, the committee hired an international auditor to perform a thorough evaluation of NIB’s assets and liabilities, which will inform a subsequent decision on NIB’s new financial structure, and its revised mandate and business model. Egypt’s banking system overall remains liquid, profitable, and generally well capitalized, and nonperforming loans are contained and well provisioned.

Egypt: Assessing External Competitiveness

Real appreciation. An unchanged nominal exchange rate in the context of high domestic inflation has resulted in sustained real appreciation over the past two years. Results under the External Balance Assessment indicated that the external position was broadly in line with fundamentals and desirable policy settings in 2018. However, the REER has continued to appreciate since then.

Improved external position. Egypt has experienced a significant reduction in external imbalances over the past three years, with the current account deficit declining from 6 percent of GDP in 2015/16 to 2.6 percent projected in 2018/19. This has been driven primarily by a strong recovery in tourism as security conditions have improved; a rise in remittances due to the liberalization of the foreign exchange market and high domestic interest rates; and a shift to net exports of oil and gas as domestic gas production increased. At the same time, there has been a large increase in capital inflows as improved macroeconomic conditions and attractive interest differentials have attracted portfolio investors

uA01fig07

Effective Exchange Rates

(Jan 2016= 100)

Citation: IMF Staff Country Reports 2019, 311; 10.5089/9781513516622.002.A001

Non-price factors. Non-oil and gas exports remain relatively small at 6 percent of GDP, with only a modest improvement following the large depreciation of the exchange rate in 2016. This reflects in large part the legacy of inward-oriented economic policies and a prominent role of the state that has constrained efficient resource allocation and weakened the ability of Egyptian firms to compete in external markets. Improved external competitiveness will require a focus on deepening structural reforms to improve non-price competitiveness and re-orient Egypt toward private sector and export-led growth.

Fiscal Policy

11. Egypt is on track to achieve a primary surplus of 2 percent of GDP in 2018/19, in line with the target under the program. This will complete the planned three-year cumulative fiscal consolidation of 5.5 percent of GDP during the program. This year’s fiscal consolidation has been underpinned by a further reduction in expenditure on fuel subsidies and continued progress on consolidation of the public sector wage bill. The overall deficit is projected to narrow from 9.7 percent of GDP in 2017/18 to 8.2 percent in 2018/19, with general government gross debt projected to decline from 93 percent to 85 percent of GDP at end-June.

12. The 2019/20 budget passed in June targets a primary surplus of 2 percent of GDP (prior action). This will help anchor a further reduction in public debt, which remains the key medium-term fiscal objective. The authorities also plan to increase issuance of longer-term debt instruments to extend duration and improve the maturity profile of public debt. The budget incorporates an increase in the public sector wage grid and a onetime wage bonus in addition to the annual statutory public wage increase to help mitigate the impact of cost of living increases on public employees. The budget also increases the allocation to expand social protection under the Takaful and Karama programs. The authorities are also preparing a pension reform based on a recent actuarial assessment of the current system to ensure its financial viability, including an overhaul of the organizational structure of public pension funds to provide more effective administration and investment of their assets.

13. The reform of fuel subsidies has been completed with the increase of prices to full cost recovery for most products1 and the introduction of indexation. Retail prices for a range of products were increased by an average of 22 percent on July 5, with the fuel subsidy bill projected to fall to 0.8 percent of GDP in 2019/20 from 1.6 percent in 2018/19 (LOI ¶12). This compares to 3.3 percent in 2016/17. The indexation mechanism is intended to maintain prices at cost-recovery levels and safeguard the budget from unexpected changes in the exchange rate and global oil prices. Price adjustments will take place quarterly, with a cap of 10 percent as a smoothing mechanism. The authorities are also implementing a plan to strengthen corporate governance and optimize operating costs of the Egyptian General Petroleum Corporation (EGPC). As part of the plan, EGPC has cleared an additional $150 million of its outstanding arrears, which at end-December 2018 amounted to $1 billion. The authorities have also continued to implement electricity subsidy reform, with an increase in electricity tariffs of 15 percent at the beginning of July.2

14. The authorities are progressing on development of a Medium-Term Revenue Strategy (MTRS) to strengthen revenue mobilization and create space to increase social spending. Strengthening social protection has been a priority since the start of the reform program, and improving revenue mobilization is essential to further increase space for critical spending in health, education, and infrastructure and to continue building a modern and efficient social safety net. This government-led initiative is supported by IMF technical assistance and covers both tax policy and tax administration. The authorities intend to publish the MTRS by end-2019 (LOI ¶8).

15. The authorities plan to broaden the coverage of the report on state-owned enterprises to incorporate entities that were omitted in the initial version and to publish it annually. Based on these reports, they intend to develop a comprehensive reform strategy to streamline and modernize the legal, governance, and operational frameworks for SOEs, and strengthen their financial performance and oversight (LOI ¶10). The PFM law will be also modernized to revamp the entire budget process, including the introduction of a medium-term budget framework.

Structural Reforms

16. The authorities remain committed to advancing structural reforms to attract investment, raise productivity and competitiveness, and create jobs. Achieving strong medium-term growth will require sustained reform implementation beyond the program period to create the enabling conditions for private-sector and export-led inclusive growth. Exports outside the oil and gas sector have strengthened modestly following the depreciation in 2016 but remain low compared to other emerging market peers at around 6 percent of GDP. To utilize Egypt’s full potential, it is critical to improve the efficiency of resource allocation by strengthening competition, improving governance, limiting the scope for corruption, and reducing the role of the state.

17. Improving the efficiency of industrial land allocation through a market-based mechanism is critical for private sector development. New guidelines for industrial land allocation were approved in March to replace the first-come, first-served process used previously with a scoring system based on multiple criteria, including an assessment of business plans, experience, technological expertise, and employment and export potential (LOI ¶14). These guidelines are more complex than before and leave significant discretion in picking successful applicants, with most land prices still set administratively. They do not include an open, transparent and competitive bidding process as specified under the structural benchmark, which was one of the key objectives of the reform. While the authorities believe that the new mechanism is in line with international best practices, the mission noted that technical capacity limitations of domestic institutions would risk large backlogs and create new opportunities for rent seeking. The mission advised the authorities to revisit the guidelines and introduce a market-based land allocation mechanism based on open, transparent, and competitive bidding.

18. The reform of public procurement has been delayed. The new Government Procurement Act was signed into law in October, aligning procurement procedures with international best practices based on the core principles of transparency, fairness, open competition, and sound procedural management (LOI ¶14). The online portal for public procurement also became operational in mid-2019. The authorities have prepared a draft executive regulation for implementation of the new act, which will standardize government procurement procedures across all government entities covered by the law to ensure a transparent and competitive bidding process, and ensure that they apply consistently and uniformly to all government entities’ tenders (including budget entities, local authorities, and economic authorities). However, final approval of the regulation was delayed beyond the end-May date specified in the benchmark in order to include input from the World Bank. The approval of a plan to ensure that SOE’s procurement rules are consistent with the new law missed the deadline in the structural benchmark, but was completed with a slight delay to allow additional consultation on best practices in this area with the OECD.

19. The new draft law on the Egyptian Competition Authority (ECA) is in Parliament. The new law aims to strengthen the institutional, financial, and operational independence of the ECA, while enhancing its accountability and transparency (LOI ¶14). The draft law was submitted to Parliament in January 2019 and is expected to be approved during the next Parliamentary session. Staff emphasized the importance of passing the amendments to strengthen independence and defining powers of the agency.

20. Reforms continue to progress in a number of other areas, albeit with some delays. The program to divest minority shares in select SOEs has moved more slowly than planned, with the sale of stakes in only one company completed in 2018/19, but the authorities remain committed to their plan to divest stakes in at least 23 SOEs, with an additional four to six planned for 2019/20 (LOI ¶14). A new SME law was sent to Parliament in April, which would introduce a reduced flat tax rate on annual turnover to spur small business development and encourage the formalization of the private sector. The authorities have also launched the Egypt Tourism Reform Program (ETRP), which seeks to build on the recent upturn in tourism by increasing value-added in the sector to help accelerate progress toward the Sustainable Development Goals.

Financing and Program Issues

21. Egypt’s capacity to repay is adequate, but risks remain. Fund credit outstanding as a share of gross reserves is projected to peak at 27.5 percent by the end of this year, and debt service to the Fund as a ratio of exports of goods and services would reach 0.9 percent in 2020/21. External risks remain in the context of volatile global financial conditions, but Egypt remains well positioned to manage any increase in capital outflows.3 The current account deficit is projected to be slightly larger over the medium-term than at the time of the fourth review, reflecting more moderate growth in remittances, but would remain around 2 percent of GDP. In addition, the CBE’s reserve position is strong, the fiscal balance is expected to continue to improve, and the memorandum of understanding between the CBE and MoF on respective responsibilities for servicing Fund credit should ensure uninterrupted repayments.

22. The CBE continues to implement the 2017 safeguards recommendations, albeit with some delay. The CBE is initiating an upgrade of its Core Banking System, which will further facilitate revamping its financial reporting practices and alignment with Egyptian Accounting Standards and the IFRS, in particular with request to improved disclosures. The CBE has eliminated its FX deposits in foreign branches of domestic banks. The draft banking law, which strengthens independence and governance of the CBE, will be discussed by Parliament in October.

Staff Appraisal

23. Egypt’s macroeconomic situation has improved markedly since the start of the program. Critical macroeconomic reforms implemented by the authorities to correct significant external and domestic imbalances have been successful in achieving macroeconomic stabilization. Growth has accelerated; external and fiscal deficits have narrowed; international reserves have increased; and public debt has been put on a firmly downward trajectory. Unemployment has declined to its lowest level in over a decade, while social protection was strengthened to ease the burden of adjustment on the poor.

24. The near-term outlook remains favorable, but sustained reform implementation will be essential to sustain strong growth and manage external risks. A more inclusive private sector and export-led growth model is needed to absorb the significant new entrants to the labor force expected over the next five years. Strong medium-term growth projected in the baseline assumes sustained implementation of structural reforms to support private investment and foster broad-based growth beyond tourism and energy. A loss of reform momentum would reduce growth and potential output and put pressure on unemployment, given the fast-increasing labor force. In addition, while the authorities’ sound policies have strengthened Egypt’s resilience to external shocks, the still-high level of public debt leaves Egypt vulnerable to a shift in global financial conditions or a weakening of investor confidence in the context of rising uncertainty over the global outlook. This highlights the importance of sustaining sound policies and accelerating structural reforms to raise productivity and further strengthen policy buffers, including by enhancing exchange rate flexibility and reducing public debt.

25. Exchange rate flexibility and a prudent monetary stance are critical to preserve macroeconomic stability. While core inflation appears to be relatively well anchored, staff supports the CBE’s intention to maintain a restrictive monetary policy stance to ensure that possible second-round effects from fuel price increases are contained. Volatility in food prices continues to present a challenge to bringing inflation down to single digits. Exchange rate flexibility remains essential to preserve the gains in real competitiveness since 2016. The elimination of the repatriation mechanism and better enforcement of regulatory rules on open FX positions of banks has helped strengthen the responsiveness of the exchange rate to capital flows, as reflected in the currency appreciation since the beginning of the year. It will be important to ensure that the exchange rate also has flexibility to move downward should portfolio flows reverse.

26. This year’s budget is on track to achieve a primary surplus of 2 percent of GDP, which would complete the programmed fiscal adjustment of 5.5 percent of GDP in three years. The fiscal consolidation has helped anchor a decline in general government debt from a peak of 103 percent of GDP at end-2016/17 to 85 percent of GDP estimated at the end of 2018/19. General government debt remains high, however, and interest expenditures remain a heavy burden on public finances. The 2019/20 budget targets a primary surplus of 2 percent of GDP; it will be important to maintain primary surpluses at this level over the medium term to keep public debt on a downward trajectory. At the same time, improving revenue mobilization is essential to create space for spending in health and education, and to further expand social protection. To this end, the authorities’ plan to complete the design of a Medium-Term Revenue Strategy by end-2019 to review tax policy and modernize tax administration is welcome.

27. The completion of fuel subsidy reform is a significant achievement and will help safeguard fiscal space for high priority social spending. This will encourage energy efficiency, attract investment in more labor-intensive industries, and free up fiscal space for high-priority expenditures, including targeted cash transfers to poor households. The automatic fuel price indexation mechanism is critical to safeguard the budget against the re-emergence of subsidies from future changes in fuel prices, and to signal the continued commitment to fiscal discipline needed to reduce public debt.

28. The authorities have launched an operational and financial review of NIB. The move to improve oversight and engage an international auditor to perform a thorough financial assessment of the bank is a welcome first step. This will need to be followed by the preparation of a comprehensive restructuring plan, including a decision on a new financial structure, revised mandate, and business model.

29. The favorable near-term outlook provides an opportune juncture to advance structural reforms before cyclical conditions become more challenging. The initiation of reforms of competition policy, the public procurement system, industrial land allocation, and SOE governance is an important first step, but greater efforts will be needed to ensure that statutory changes achieve the desired results in practice. Progress on reform implementation has been uneven with delays in several areas, while the new guidelines for industrial land allocation remain excessively complex and not market based. The transition to a transparent market-based economy will require further broadening and deepening of reforms and their sustained implementation beyond the current program, particularly regarding long-standing problems of weak governance, rent seeking, vulnerabilities to corruption, and the heavy presence of the state in the economy.

30. Staff supports the authorities’ request for the completion of the fifth review under the Extended Arrangement. It is proposed that Article IV consultations with Egypt revert to the 12-month cycle. The next Article IV consultation is expected to be held in early 2020.

Figure 1.
Figure 1.

Egypt: Real and External Sector Developments

Citation: IMF Staff Country Reports 2019, 311; 10.5089/9781513516622.002.A001

Sources: Egyptian authorities; IMF, International Financial Statistics; Bloomberg; Markit Economics; and IMF staff calculations and projections.
Figure 2.
Figure 2.

Egypt: Fiscal Sector Developments

Citation: IMF Staff Country Reports 2019, 311; 10.5089/9781513516622.002.A001

Sources: Egyptian authorities; IMF, International Financial Statistics; Bloomberg; and IMF staff calculations and projections.
Figure 3.
Figure 3.

Egypt: Monetary Sector Developments

Citation: IMF Staff Country Reports 2019, 311; 10.5089/9781513516622.002.A001

Sources: Egyptian authorities; International Financial Statistics; Bloomberg; and IMF staff calculations and projections.
Table 1.

Egypt: Selected Macroeconomic Indicators, 2016/17–2020/21 1/

article image
Sources: Egyptian authorities; and IMF staff estimates and projections.

Fiscal year ends June 30.

General government includes the budget sector, the National Investment Bank (NIB), and social insurance funds.

Budget sector comprises central government, local governments, and some public corporations.

The primary balance for 2017/18 excludes the recapitalization of the CBE for EGP 6 billion.

Includes multilateral and bilateral public sector borrowing, private borrowing and prospective financing.

Debt at remaining maturity and stock of foreign holding of T-bills.

Table 2a.

Egypt: Balance of Payments, 2016/17–2023/24

(In billions of U.S. dollars, unless otherwise indicated)

article image
Sources: Central Bank of Egypt; and IMF staff estimates and projections.

EGPC arrears.

Table 2b.

Egypt: Balance of Payments, 2016/17–2023/24

(In percent of GDP, unless otherwise indicated)

article image
Sources: Central Bank of Egypt; and IMF staff estimates and projections.

EGPC arrears.

Table 3a.

Egypt: Budget Sector Operations, 2016/17–2023/24 1/

(In billions of Egyptian pounds, unless otherwise indicated)

article image
Sources: Ministry of Finance; and IMF staff estimates.

Budget sector comprises central and local governments, and some public corporations. Fiscal year ends June 30. Cash basis.

Food subsidies include subsidies paid to farmers.

The primary balance for 2017/18 excludes the recapitalization of the CBE for EGP 6 billion.

Oil revenue minus fuel subsidies. Oil revenue includes corporate income tax receipts from EGPC and foreign partners, royalties, extraordinary payments, excise taxes on petrol products, and dividends collected from EGPC.

Includes debt issued to the SIF for settlement of past arrears and implied future liabilities.

Table 3b.

Egypt: Budget Sector Operations, 2016/17–2023/24 1/

(In percent of GDP)

article image
Sources: Ministry of Finance; and IMF staff estimates.

Budget sector comprises central and local governments, and some public corporations. Fiscal year ends June 30. Cash basis.

Food subsidies include subsidies paid to farmers.

The primary balance for 2017/18 excludes the recapitalization of the CBE for 6 billion Egyptian pounds.

Oil revenue minus fuel subsidies. Oil revenue includes corporate income tax receipts from EGPC and foreign partners, royalties, extraordinary payments, excise taxes on petrol products, and dividends collected from EGPC.

Includes debt issued to the SIF for settlement of past arrears and implied future liabilities.