The IMF Executive Board approved a 46-month USD 3 billion Extended Fund
Facility (EFF) arrangement for Egypt in December 2022. The EFF-supported program
aims to safeguard economic stability, restore buffers, and pave the way for inclusive
and private sector-led growth. Following policy slippages, the first and second reviews
were delayed. The return to a fixed exchange rate in February 2023 undermined the
initial credibility boost from the announcement of a shift to a flexible regime and
hampered the execution of other program pillars such as divestment of state-owned
assets. It also led to foreign exchange (FX) shortages, a large spread in the parallel
market, and constrained imports, all of which fueled inflation and weighed on growth.
At the same time, delays in raising the policy rate in response to higher-thanexpected
inflation resulted in more negative real rates and financial repression.
Continued investment in national projects at a pace inconsistent with macroeconomic
stability contributed significantly to foreign exchange and inflation pressures.
Spillovers from the conflict in Gaza and Israel and the Red Sea disruptions have
exacerbated external pressures and widened further the financing gap. A significant
investment deal with Abu Dhabi Developmental Holding Company (ADQ), signed in
February, has improved the near-term financial outlook, providing for a more benign
external financing environment as the authorities push forward with needed reforms.