The IMF stands ready to support Egyptian authorities’ economic reforms and efforts to tame inflation, Fund Mission Chief for Egypt Ivanna Vladkova Hollar said in a news conference Tuesday in Washington, DC (Jan 10).
“The IMF program, approved in December, supports the authority's own reform program, which aims to address vulnerabilities and promote sustainable and inclusive growth and job creation. It is anchored on three main pillars,” Vladkova Hollar told reporters covering the staff report for the latest program review for Egypt.
“First, exchange rate and monetary policies will be focused on a permanent shift to a flexible exchange rate regime that would help absorb external shocks and rebuild reserves while gradually reducing inflation. Second, continued fiscal discipline and fiscal structural policies aim to maintain market confidence and ensure the downward trajectory of the debt to GDP ratio, while strengthening the budgetary process, increasing transparency and improving the budget composition so as to allow for an expansion in social spending. Third, a structural reform agenda will help promote private sector investment and secure a strong and inclusive medium-term growth, including through reducing the role of the state in generating economic activity, leveling the playing field between state owned enterprises and private companies, and removing barriers to trade,” she laid out.
The IMF sees inflation cooling off due to Egyptian authorities’ actions and reforms.
“Let me note that inflation has been a global challenge this year and Egypt is not an exception. And while we expect inflation to remain elevated during this fiscal year, we do expect it to fall back to around 7% by fiscal year 2024, 2025.”
She noted that authorities’ measures to move the Egyptian pound to a floating exchange rate will help tame inflation and encourage investment inflows.
“Flexibility in the exchange rate will bring several benefits. It would help Egypt's domestic economy adjust more smoothly to external shocks. It would support the ability of Egyptian businesses to sell their goods and services abroad, and it would encourage greater investment.”
Reforms to Egypt’s fiscal plans should bring in increased revenue, encourage private sector activity, boost employment and lower sovereign debt levels to 78% ratio to GDP said Vladkova Hollar.
“I should emphasize again that the intention of the authorities under the program is to bring about this consolidation, bring about this reduction in debt without without jeopardizing social support programs. In fact, the objective is to expand social support programs under the under the IMF supported program.”
Structural reforms should not come at the expense of social spending and support, the IMF says.
“In recognition of the significant impact that high inflation has on the purchasing power of low and middle income households, the authorities approach to targeted budget support, which they have actually rolled out since the global commodity price shock hit, is the right approach. Budget support is the right instrument for compensation. This support needs to remain well targeted, meaning that it reaches those and only those that is intended to compensate for the economic shocks, including inflation.”
For a full copy of the concluding statement report: https://www.imf.org/en/Publications/CR/Issues/2023/01/06/Arab-Republic-of-Egypt-Request-for-Extended-Arrangement-Under-the-Extended-Fund-Facility-527849