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IMF Country Report No. 21/7
ARAB REPUBLIC OF EGYPT
FIRST REVIEW UNDER THE STAND-BY ARRANGEMENT AND MONETARY POLICY CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR THE ARAB REPUBLIC OF EGYPT
January 2021
In the context of the First Review Under the Stand-By Arrangement and Monetary Policy Consultation, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on December 18, 2020 following discussions that ended on November 18, 2020, with the officials of the Arab Republic of Egypt on economic developments and policies underpinning the IMF arrangement under the Stand-By Arrangement. Based on information available at the time of these discussions, the staff report was completed on December 4, 2020.
A Staff Supplement updating information on recent developments.
A Statement by the Executive Director for the Arab Republic of Egypt.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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ARAB REPUBLIC OF EGYPT
FIRST REVIEW UNDER THE STAND-BY ARRANGEMENT AND MONETARY POLICY CONSULTATION
December 4, 2020
Executive Summary
The growth impact of the COVID-19 crisis has so far been less severe than expected, as strong consumption helped offset weak tourism and investment.
Measures taken to address the health and social needs and support the sectors most directly affected by the crisis appear to have helped mitigate the impact of the shock. External market conditions have improved with a strong return of portfolio inflows since the approval of the Stand-By Arrangement (SBA).
The external environment remains fragile, however, with considerable risks to the outlook. With the growing numbers of countries experiencing a second wave of the pandemic, risks arise from a more prolonged standstill in tourism. The still-high level of public debt and gross financing needs also leave Egypt vulnerable to a reversal of capital flows, which risk triggering again financing and exchange rate pressures. Rebuilding buffers and ensuring investors’ continued confidence with timely program implementation are key.
Program performance has been broadly on track. All end-September quantitative performance criteria were met, although a fall in food prices in recent months resulted in a breach of the lower outer band of the end-September monetary policy consultation clause (MPCC). The end-September structural benchmark (SB) on the publication of financial reports of state-owned enterprises (SOEs) and Economic Authorities was met, the law to streamline customs procedures (end-March SB) was ratified in November, and a revised Public Financial Management Law was submitted in October to the Parliament (end-December SB). The authorities have also requested amending the MPCC to take into account recent inflation dynamics.
Staff supports completion of the first review and monetary policy consultation under the SBA, and the proposed modification of the MPCC. Upon completion, an additional SDR 1,158.04 million would be made available, bringing total access to SDR 2,605.6 million.
Approved By
Taline Koranchelian and Kristina Kostial
The staff team comprised Uma Ramakrishnan (head), Deeksha Kale, Matthew Gaertner, Suchanan Tambunlertchai (all MCD), Randa Elnagar (COM), Geoffrey Keim (SPR), Cristian Alonso (FAD), Peter Lohmus (MCM), Said Bakhache (Senior Resident Representative), and Karim Badr (Resident Representative Office). The team was supported by Marianne Azer, Maria de Mesa, and Alex de Keyserling. Mr. Mahmoud Mohieldin and Ms. Wafa Abdelati (OED) also participated in the meetings. Virtual discussions were held on November 4–18, 2020 with Mohammed Maait, Minister of Finance; Tarek Amer, Governor of the Central Bank of Egypt; and other senior officials.
Contents
RECENT DEVELOPMENTS
OUTLOOK AND RISKS
PROGRAM PERFORMANCE
POLICY DISCUSSIONS
A. Fiscal Policy: A Balancing Act
B. Monetary Policy: Anchoring Inflation Under Uncertainty
C. Maintaining Financial Resilience
D. Structural Reforms
PROGRAM ISSUES
STAFF APPRAISAL
BOX
1. Exceptional Access Criteria
TABLES
1. Selected Macroeconomic Indicators, 2018/19–2024/25
2a. Balance of Payments, 2018/19–2024/25 (Billions of U.S. dollars)
2b. Balance of Payments, 2018/19–2024/25 (Percent of GDP)
3a. Budget Sector Operations, 2018/19–2024/25 (Billions of Egyptian pounds)
3b. Budget Sector Operations, 2018/19–2024/25 (Percent of GDP)
4 General Government Operations, 2018/19–2024/25
5. Central Bank Accounts, 2018/19–2024/25
6. Monetary Survey, 2018/19–2024/25
7a. Summary of National Accounts, 2018/19–2024/25 (Percent)
7b. Summary of National Accounts, 2018/19–2024/25 (Percent of GDP)
8. Medium-Term Macroeconomic Framework, 2018/19–2024/25
9. Financial Soundness Indicators of the Banking System
10. Capacity to Repay the Fund, 2018/19–2029/30
11. External Financing Requirements and Sources, 2018/19–2024/25
12. Schedule of Reviews and Purchases Under the Stand-By Arrangement
13. Quantitative Performance Criteria and Indicative Targets for FY2020/2021
14. Structural Benchmarks Under the 12-Month SBA
ANNEXES
I. Trends in the Egyptian Labor Market
II. Greening the Recovery in Egypt
III. Fiscal Response to COVID-19 Pandemic
IV. Public and External Debt Sustainability Analysis
APPENDICES
I. Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies (Update)
Attachment II. Technical Memorandum of Understanding
Attachment III. Consultation with the IMF Executive Board on the Missed Inflation Target Under the Monetary Policy Consultation Clause
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ARAB REPUBLIC OF EGYPT
FIRST REVIEW UNDER THE STAND-BY ARRANGEMENT AND MONETARY POLICY CONSULTATION—SUPPLEMENTARY INFORMATION
December 16, 2020
Prepared By
Middle East and Central Asia Department
This statement provides an update on developments since the issuance of the staff report on December 4. This information does not in any way alter staff’s appraisal.
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