IMF gives Egypt strong marks in 3rd programme review
By Gazette Staff:
CAIRO, July 12, 2018 - The International Monetary Fund (IMF) maintained a favourable outlook for Egypt's economy in its third major review of the country's loan programme on Thursday, a Reuters report said.
The three-year $12 billion loan programme was agreed between the Egyptian government and the IMF in late 2016 and was aimed at drawing back investors with Egypt undertaking tough reforms such as slashing energy subsidies, imposing new taxes, and floating its pound currency.
The country raked in $2.27 billion dollars in tourism revenues in the quarter from January-March, the latest available data from the central bank showed.
The Fund said that should help Egypt reduce its overall current account deficit to 2.6 per cent in 2018-2019, down from a previous projection of 4 per cent.
The IMF estimated that Egypt would face a financing gap of $1 billion for the year, which it could plug through either a Eurobond or its own reserves, suggesting that Egypt could tap international markets again this year.
It said that external debt was likely to rise to $91.5 billion from a previous projection of $85.2 billion in its second review.
Inflation has soared in the import-dependent country after it floated its currency in late 2016, hitting over 30 per cent last year, but price rises have cooled in recent months.
Recent IMF-backed cuts to energy subsidies have pushed inflation back up however, to 14.4 per cent in June from 11.4 per cent in May.
The Fund expects average inflation for the 2018-2019 fiscal year to be 14.4 per cent, and urged tight monetary policy to keep a lid on prices.
"The Central Bank of Egypt should maintain its restrictive stance to contain second-round effects of fuel and electricity price increases, with future policy changes guided by inflation expectations and demand pressures," IMF First Deputy Managing Director David Lipton said.
Egypt's fuel subsidy bill is expected to account for 2.1 per cent of gross domestic product in the 2018-2019 fiscal year, the report said, up from a previous estimate of 1.2 percent on the back of higher global fuel prices.
Foreign investment in Egypt's equity and debt markets reached record highs since the country embarked on the reforms, though foreign direct investment outside the energy sector has remained sluggish.
The IMF warned that a general pullback from emerging markets by investors presents a risk, but said Egypt is "well-positioned" to weather any outflows due to healthy foreign reserves, which hit $44.258 billion at the end of the 2017-2018 fiscal year.