The International Monetary Fund (IMF) has released a report stating that Egypt is committed to addressing the government’s use of overdraft facilities from the central bank and off-budget public sector activities. This commitment comes after the IMF approved an $8 billion financial support program for Egypt.
The report highlights Cairo’s efforts to address weaknesses such as the central bank’s lending to public bodies. However, it also mentions that returning to a fixed exchange rate in February 2023 had negative consequences, leading to a shortage of foreign exchange, high demand for foreign currencies in the parallel market, and restricted imports, fueling inflation and affecting growth.
Egypt has already taken steps to tighten monetary policy, shift to a flexible exchange rate system, and raise gasoline and fuel prices. These measures were implemented to compensate for previous adjustments since December 2022. The Fund had suspended a previous support program worth $3 billion last year due to errors in policy implementation.
The central bank’s rapid increase in net domestic assets and lending to government bodies without Ministry of Finance approval were also highlighted in the report. The report noted that allowing the Ministry of Finance to expand the use of overdraft facilities contributed to inflationary pressures and exchange rate problems in the past two years.
The report emphasized the commitment of Egyptian authorities to limit the government’s overdraft account with the Central Bank and prevent further lending outside the Ministry of Finance. As of February 2023, the Central Bank had lent up to 765 billion Egyptian pounds ($15.9 billion) to government bodies other than the Ministry of Finance. Additionally, an expansion of loan programs for Egypt was approved by an IMF board meeting on March 29, recognizing its economic impact on Gaza crisis relief efforts.
Recently, Egypt secured a record $35 billion investment deal with United Arab Emirates (UAE), helping alleviate some part of its foreign currency shortage.
Overall, this expert report acknowledges Egypt’s efforts towards improving its economy while highlighting areas where more action is needed.
