New IMF loan agreement testifies to stability of Egyptian economy: PM Madbouly – Politics – Egypt

In the presser, Egypt announced that it has entered into a 46-month staff-level agreement with the International Monetary Fund (IMF) under the Extended Financing Facility (EFF) with a loan worth $3 billion.

Minister of Finance Mohamed Maiit, Minister of Planning and Economic Development Hala El-Said, IMF Mission Chief for Egypt Ivanna Vladkova Hollar and Governor of the Central Bank of Egypt Hassan Abdalla attended the press conference.

During the press conference, Maait explained that the $3 billion IMF loan is part of a $9 billion financing plan that is expected to include $1 billion from the sustainability fund and $5 billion the country’s development partners.

Prime Minister Madbouly added that “the government’s new economic recovery program, which is supported by the IMF, is mainly aimed at preserving macroeconomic stability, achieving public debt sustainability and improving the performance of the economy for coping with external shocks triggered by major global crises,

It also aims to strengthen social safety nets, social protection, strengthen structural reforms to achieve growth and create jobs through the private sector, Madbouly said.

For his part, the CBE Governor underlined during the press conference that “the agreement is part of the structural measures and policies that Egypt has recently adopted as part of its new economic reform program. “.

“This program will improve the country’s macroeconomic indicators and its ability to meet external obligations that have been exacerbated as a result of the Russian-Ukrainian conflict,” Abdalla added.

In mid-October, Egypt and the IMF reached agreement on the three main pillars of a new economic reform program to help the country deal with various economic challenges amid global crises.

On the monetary policy side, the Governor noted that the CBE aims to rebuild the country’s net international reserves (NIR) in a gradual and sustainable manner, revealing that the bank has designed a program that aims to fill the gaps in the financing of the countries over the next few years. four years.

He also affirmed that the CBE gives priority in the short and medium term to reducing high inflation rates to the announced target of seven percent (2 ± percent) until the end of the fourth quarter of 2022.

During the press conference, Finance Minister Maait also announced the implementation modalities of the new social protection funding package that the government announced yesterday.

The finance minister said his ministry has allocated EGP 67.3 billion to implement this package from November 1, adding that the public treasury will bear an additional EGP 1.9 billion to keep oil and gas prices up. at the end of 2022.

On the financial side, Maait said the agreement with the IMF aims to reduce the overall debt-to-GDP ratio to less than 80% in the medium term.

“The program aims to provide Egypt with balance of payments and budget support while catalyzing additional financing from Egypt’s international and regional partners to maintain economic stability, address macroeconomic imbalances and the fallout from the war in Ukraine, protecting livelihoods and advancing deep structures and governance reforms to promote private sector-led growth and job creation,” according to IMF mission chief in Egypt Ivanna Vladkova Hollar .

“Egypt’s international and regional partners will play a critical role in facilitating the implementation of the authorities’ policies and reforms, revealing that approximately $5 billion in additional funding is expected to be provided through multilateral partners and regional markets during the current fiscal year 2022/2023, which ends in June 2023, which will help strengthen Egypt’s external position,” read a statement released by the IMF on Thursday.

Course change decisions

Earlier on Thursday, at an unscheduled meeting, the CBE’s Monetary Policy Committee (MPC) announced an increase in key interest rates by 2% (200 basis points) to 13.25%, 14, 25%, 13.75% and 13.57% for overnight deposit. exchange rate, overnight financing rate, main operation rate and discount rate, respectively.

In a statement, the CBE attributed its decision to strong global and domestic prices which are expected to keep headline inflation above the MPC’s announced target of seven percent (±2 percent) on average until March. fourth quarter of 2022.

The decision aims to maintain the CBE’s mandate to ensure price stability in the local market in the medium term, the statement noted.

It also aims to anchor inflation projections and contain demand-side pressures and higher broad money growth as well as second-round effects of supply shocks, he added. .

Also on Thursday, the CBE raised the letter of credit (LC) exception limit for imported shipments from $5,000 to $500,000 effective today after announcing it would begin the process of eliminating phase-out of a February decision that mandated the use of (LC for import financing by December 2022.

On Wednesday, the government raised the minimum wage for public employees from EGP 2,700 to EGP 3,000 in addition to an allowance to such employees and pensioners to meet increases in the cost of living.

The government has also frozen electricity prices for households until June 2023.

Egypt’s annual headline inflation rose to 15.3% in September from 8% in September 2021, the highest level since recording 15.7% in November 2018.

IMF Statement

“The program aims to provide Egypt with balance of payments and budget support while catalyzing additional financing from Egypt’s international and regional partners to maintain economic stability, address macroeconomic imbalances and the fallout from the war in Ukraine, protecting livelihoods and advancing deep structures and governance reforms to promote private sector-led growth and job creation,” according to IMF mission chief in Egypt Ivanna Vladkova Hollar .

“Egypt’s international and regional partners will play a critical role in facilitating the implementation of the authorities’ policies and reforms, revealing that approximately $5 billion in additional funding is expected to be provided through multilateral partners and regional markets during the current fiscal year 2022/2023, which ends in June 2023, which will help strengthen Egypt’s external position,” read a statement released by the IMF on Thursday.

The loan agreement is subject to approval by the IMF’s executive board, which is expected to discuss the deal in December, according to Hollar.

She added that the rapidly changing global environment and the fallout from the war in Ukraine pose significant challenges for countries around the world, including Egypt.

“The IMF team welcomes the authorities’ recent steps to expand targeted social protection, implement a sustainable flexible exchange rate regime, and phase out the mandatory use of letters of credit for import financing, as well as their unwavering commitment to tackle the necessary macroeconomic adjustments and to carry out an ambitious program of structural reforms in a difficult global context,” said Hollar.

Hollar also added that the Egyptian government’s fiscal policy under the EFF will be anchored on the reduction of general public debt and gross financing needs, adding that further fiscal consolidation will be supported by the implementation of the government’s Medium Term Revenue Strategy (MTRS) which aims to improve the efficiency and progressivity of the tax system.

“Social protection will continue to be strengthened, including through the temporary extension of emergency support to ration card holders and measures to protect the purchasing power of vulnerable employees and pensioners. Broad fiscal structural reforms will also aim to further improve the composition of the budget, strengthen governance, accountability and transparency, and support climate change mitigation goals,” Hollar noted.

On the monetary policy side, Hollar said the Central Bank of Egypt’s (CBE) move to a flexible exchange rate regime is an important and welcome step to correct external imbalances, boost Egypt’s competitiveness and attract foreign direct investment.

“The commitment to sustainable exchange rate flexibility going forward will be a fundamental policy to rebuild and preserve Egypt’s external resilience in the long term. The EFF will support the CBE’s efforts to improve the functioning of the foreign exchange market, increase foreign exchange reserves and further improve the transmission of monetary policy.

Monetary policy, which will be firmly anchored in the CBE’s price stability mandate, will aim to gradually reduce inflation within the CBE’s inflation target,” Hollar explained.

The EFF also aims to unlock Egypt’s enormous growth potential by broadening and deepening structural and governance reforms. The program will include policies aimed at spurring private sector growth, including reducing the footprint of the state, adopting a stronger competition framework, improving transparency and ensuring better trade facilitation, according to Hollar.

She added that the Egyptian authorities also plan to expand targeted social transfers and increase spending on social assistance, health and education, stressing that these reform measures will be essential to address long-standing constraints to higher, more sustainable and more inclusive growth in Egypt.

The IMF also announced that the Egyptian government has also requested financing under the new Resilience and Sustainability Facility (RSF) which aims to provide affordable, long-term financing to help build resilience, including against climate change.

“Access discussions under this facility, which could unlock up to an additional $1 billion for Egypt, will take place in the coming months. We would like to thank the authorities and their technical teams for the frank and constructive discussions and we look forward to continuing our commitment to Egypt and its people,” concluded Hollar.

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