IMF, Egypt reach deal to unlock $1.2bn to shore up strained public finances

Washington, DC-based lender says Cairo agreed to raise tax-to-revenue ratio and accelerate divestment of state-owned firms.

The International Monetary Fund (IMF) has announced that it has reached an agreement with Egypt to unlock about $1.2bn in funds to prop up the country’s troubled finances.

The Washington, DC-based lender said on Tuesday that it reached the “staff-level agreement”, which is subject to approval by the Executive Board, after Cairo outlined steps to improve macroeconomic stability.

Egyptian authorities agreed to raise the tax-to-revenue ratio by 2 percent of gross domestic product (GDP) over the next two years and accelerate the divestment of state-owned companies, among other steps, the lender said.

“A comprehensive reform package is needed to ensure that Egypt rebuilds fiscal buffers to reduce debt vulnerabilities, and generates additional space to increase social spending, especially in health, education and social protection,” said Ivanna Vladkova Hollar, who led the IMF’s discussions with Egyptian authorities.

The two sides also agreed on the need to speed up reforms to improve the business environment, Hollar said.

“In this regard, more decisive efforts are needed to level the playing field, reduce the state footprint in the economy, and increase private sector confidence to help Egypt attract foreign investment and develop its full economic potential,” she said.

Egypt in March struck a deal to receive an $8bn loan from the IMF in tranches subject to undertaking economic reforms, expanding on a $3bn, 46-month deal struck in December 2022.

As part of the terms of the loan, Cairo agreed to let its currency sharply depreciate and allow the exchange rate to be determined by market forces.

Egypt has been grappling with double-digit inflation and foreign currency shortages amid economic challenges including a collapse in revenues from the Suez Canal, the war in Ukraine and the fallout of the COVID-19 pandemic.