PRESS RELEASE: An International Monetary Fund (IMF) team led by Chris Jarvis visited Cairo during September 13–17, 2015 to review recent economic developments since the Article IV Consultation mission in November 2014 and discuss with the authorities their planned economic policies for the remainder of the fiscal year.
At the end of the visit, Mr. Jarvis issued the following statement:
“There have been positive economic developments since the mission’s last visit in Egypt. Some of the pledges made at the Egypt Economic Development Conference in March are already in the implementation phase; in August, the parallel Suez Canal was opened after just one year of work; and a major gas find in Egyptian waters bodes well for the countries’ outlook in the medium term. The country’s return to international markets was marked by the successful issuance of a $1.5 billion Eurobond. Macroeconomic figures also point to some improvement, with growth rebounding to 4.2 percent in 2014/15, and inflation has declined. Financial soundness indicators point to the continued resilience of the banking sector, and the authorities are making efforts to deepen financial inclusion.
The authorities succeeded in significantly reducing the underlying budget deficit despite a decline in foreign grants, thanks to a wide-ranging set of reforms including energy subsidy reforms, and progress in containing the wage bill and increasing tax revenues. The government’s plan is designed to balance fiscal consolidation with increased spending on social programs and infrastructure investment.
“At the same time, unemployment remains high notably among the youth. The fiscal deficit is still large and domestic public debt high. Reserves are about three months of imports, and foreign exchange is in short supply. The authorities recognize that the recent positive developments need to be secured through strong policies, and intend to continue a much-needed fiscal consolidation while preserving growth-friendly investment. The mission welcomes the authorities’ plans to pursue fiscal and structural reforms in order to put public debt on a downward-trending path and encourage private sector credit, thereby supporting growth and employment. Lower fuel and electricity subsidies, combined with the implementation of the VAT, would go a long way toward improving the strength of the budget.
“The Central Bank of Egypt is making efforts to curb the parallel exchange market. It has also allowed movement in the official exchange rate and widened the exchange-rate margin earlier this year. We consider that a gradual move toward a more flexible exchange rate policy focused on achieving a market-clearing rate would serve Egypt’s interests. Such a move would improve the availability of foreign exchange, strengthen competitiveness, support exports and tourism, and attract foreign direct investment. This, together with the pursuit of structural reforms, should also foster growth and jobs, and reduce financing needs.
“During their visit, the mission met with Central Bank Governor Hisham Ramez, Minister of Finance Hany Dimian, members of the banking sector, representatives of the private sector and multilateral institutions, diplomats and members of civil society organizations. The team would like to thank the authorities for the high quality and openness of the discussions and for their hospitality. The IMF will be ready to support Egypt and its people in any way that is useful.”