In-Depth Economic & Institutional Report Style Title
The International Monetary Fund (IMF) announced it has reached a staff-level agreement with the Egyptian government regarding the policies needed to complete the seventh review under the Extended Fund Facility (EFF) and the second review under the Resilience and Sustainability Facility (RSF). This agreement paves the way for the disbursement of $1.636 billion in new financing, subject to approval by the IMF’s Executive Board.
$1.5 Billion from the Extended Fund Facility In a statement issued following the conclusion of the mission led by Ivanna Vladkova Hollar, the IMF clarified that completing the two reviews will grant Egypt access to $1.5 billion under the EFF, in addition to $136 million under the RSF. This brings the total financing Egypt has received under both programs to approximately $7.2 billion.
Economic Resilience Amid Regional Tensions The statement noted that the Egyptian economy has demonstrated a remarkable degree of resilience in the face of the economic fallout from the war in the Middle East. This was attributed to the rapid and decisive actions taken by the government, which included adjusting fuel and electricity prices, rationalizing energy consumption across government entities, reprioritizing expenditures, and increasing social protection allocations to support the most vulnerable groups.
GDP Growth Hits 5% in the Third Quarter The IMF added that the real Gross Domestic Product (GDP) growth rate reached 5% during the third quarter of the fiscal year, raising the average growth over the first nine months to 5.2%. However, the inflation rate increased, and the current account deficit widened slightly due to a higher import bill.
Exchange Rate Flexibility Absorbs Portfolio Outflows The Fund emphasized that exchange rate flexibility helped absorb the impact of foreign portfolio investment outflows during the period of regional tensions, while international reserves maintained their stability through the end of March 2026. Furthermore, the return of foreign direct investment flows—supported by the announcement of a ceasefire agreement between the United States and Iran—helped offset most of the exchange rate depreciation that occurred at the onset of the crisis.
IMF Warns of Persistent Downside Risks Despite these positive indicators, the IMF warned of ongoing downside risks, pointing out that a resurgence of global inflationary pressures or an escalation of regional tensions could weigh on growth, tighten financial conditions, and exert pressure on the external sector. Conversely, the Fund noted that the US-Iran ceasefire agreement could contribute to cooling global energy prices, improving investor confidence, and boosting inflows to Egypt.
Strong Fiscal Performance by the Egyptian Government The statement highlighted that the government's fiscal performance was robust, with tax revenues and the primary surplus exceeding their targets through the end of March 2026, supported by improved tax collection and public spending discipline. The IMF expects the primary surplus to rise from 4.8% of GDP in the 2025/2026 fiscal year to 5% in the 2026/2027 fiscal year, stressing the importance of maintaining this trajectory to ensure a sustainable reduction in public debt.
Tax Reforms Bolster Public Revenues The Fund praised the tax reforms that broadened the tax base and enhanced the efficiency of tax administration, projecting that the ratio of tax revenues to GDP will increase by approximately 1.2% this year. It confirmed that the 2026/2027 fiscal year budget and the new tax package will reinforce this trend, alongside the necessity of creating fiscal space to increase social spending and expand safety nets for those most in need.
Public Debt Management Remains a Top Priority The IMF stressed that strengthening public debt management remains a primary priority. It explained that the government's plan to reduce gross financing needs by about 10% of GDP during the 2025/2026 and 2026/2027 fiscal years represents a significant step toward enhancing debt sustainability and mitigating financial risks. This will be achieved by lengthening the maturity of debt instruments, executing liability management operations, and utilizing proceeds from the government IPO program.
Inflation Remains Elevated at 14.6% in May The Fund pointed out that despite efforts to curb inflation, the annual urban inflation rate remained high at 14.6% in May, with expectations of it rising to 15.8% by the end of the fiscal year, driven by higher energy prices and the lingering effects of the exchange rate depreciation. The IMF underscored the need to maintain a tight monetary policy to contain inflationary pressures.
Exchange Rate is the First Line of Defense The statement affirmed that exchange rate flexibility must remain the first line of defense against external shocks. It also stressed the importance of accelerating structural reforms, particularly improving the business environment, enhancing governance and transparency, and expediting the implementation of the State Ownership Policy Document. This includes expanding the program to exit economic activities, thereby creating a fair competitive environment that supports the private sector and generates new job opportunities.
Progress in the Resilience and Sustainability Program Regarding the RSF, the IMF stated that Egypt has made progress in integrating climate considerations into public investment planning, developing climate risk management within fiscal policy, and boosting climate project financing. It also noted ongoing efforts to strengthen climate risk management in the financial sector, improve water resource management, and develop frameworks for emissions reduction.
Commendation for Egyptian Authorities' Cooperation The IMF concluded its statement by thanking the Egyptian authorities for their close cooperation and all the entities involved in the discussions, praising what it described as productive discussions and the warm hospitality extended during the mission.