- IMF staff and the Egyptian authorities have reached staff level agreement on the policies that could support completion of the seventh review under the Extended Fund Facility (EFF) and the second review under the Resilience and Sustainability Facility (RSF).
- Strong policy responses to the external shock stemming from the war in the Middle East have helped mitigate its impact. While the economy has remained resilient, downside risks underscore the importance of continuing decisive implementation of the authorities’ reform program.
- Key policy priorities include further strengthening debt management, reducing inflationary pressures, protecting vulnerable groups, and advancing reforms—particularly those related to improving the business environment and reducing the role of the state—to support stronger private sector–led growth to benefit all Egyptians.
Washington, DC: An International Monetary Fund (IMF) mission, led by Mr. Mati, held productive discussions with the Egyptian authorities (in Cairo during May 11-21 and virtually thereafter) on the economic and financial policies that could underpin the completion of the seventh review under the Extended Fund Facility (EFF) arrangement and the second review under the Resilience and Sustainability Facility (RSF) arrangement.
At the conclusion of the discussions, Mr. Mati issued the following statement:
“The IMF team and the Egyptian authorities have reached staff level agreement on the seventh review under the 48-month Extended Arrangement under the Extended Fund Facility (EFF) and the second review under the Resilience and Sustainability Facility (RSF). Subject to Board approval, completion of the reviews would make available SDR 1.11 billion (about $1.5 billion) under the EFF arrangement and SDR 100.00 million (about $136 million) under the RSF arrangement, bringing total disbursements under the arrangements to about SDR 5.3 billion ($7.2 billion).
“The impact of the war in the Middle East on the Egyptian economy has remained relatively contained, supported by the authorities’ timely and decisive policy actions, including fuel and electricity price adjustments, as well as rationalizing energy consumption by government entities and reprioritizing spending to alleviate external and fiscal pressures, together with increasing social spending to mitigate the impact on the vulnerable. Real GDP growth reached 5 percent in the third quarter, bringing growth for the first three quarters of the fiscal year to 5.2 percent. Headline inflation increased, and the current account deficit widened slightly, reflecting a higher import bill. With the exchange rate acting as a shock absorber to sizable portfolio outflows, gross international reserves remained broadly stable at end-March 2026. The recent return of portfolio inflows further supported by the announcement of the US–Iran agreement has helped reverse most of the exchange rate depreciation observed since the onset of the conflict.
“Downside risks persist. Renewed global inflationary pressures or regional tensions could weigh on growth, tighten financial conditions, and place substantial pressure on the external position. Conversely, the recent US-Iran ceasefire agreement could reduce pressures from global energy prices, improve investor sentiment, and support higher inflows to Egypt.
“Fiscal performance was strong. By end-March 2026, both primary balance and tax revenue targets were exceeded, reflecting strong domestic revenue mobilization and overall spending remaining within the allocated budget ceiling. The primary surplus is projected to rise from 4.8 percent of GDP in FY2025/26 to 5 percent of GDP in FY2026/27. Sustaining this effort will be critical for placing public debt firmly on a downward path. Continued efforts will also be needed to contain fiscal risks, including those related to the large stock of government guarantees.
“The authorities’ domestic revenue mobilization efforts—including through widening the tax base and improved tax administration—are producing tangible results, with the tax-to-GDP ratio expected to increase by 1.2 percent of GDP this year. The FY2026/27 budget and the accompanying tax package is expected to reinforce these trends. This is essential given Egypt’s low tax-to-GDP ratio compared with other emerging markets, and the need to create fiscal space for additional social spending. While the authorities are taking timely steps to protect vulnerable households during the adjustment process, further efforts are needed to develop social safety nets including by expanding targeted budget support to vulnerable households.
“Strengthening public debt management remains a priority. Reducing gross financing needs is essential to further mitigate fiscal risks. The authorities’ plan to lower gross financing needs by about 10 percent of GDP over FY2025/26–FY2026/27—through lengthening maturities at issuance, conducting voluntary liability management operations, and using divestment proceeds among others—is a critical step toward enhancing debt sustainability and reducing vulnerabilities.
“Despite sustained efforts to reduce inflation, headline urban inflation remained elevated at 14.6 percent in May and is now projected to rise to 15.8 percent by the end of the fiscal year—higher than projected pre-war—reflecting the impact of unfavorable base effects, higher energy prices, and pass-through from the exchange rate depreciation at the onset of the war. Against this backdrop, pursuing a tight monetary policy stance is needed to contain any renewed inflationary pressures and potential second-round effects from energy price adjustments.
“As demonstrated during the recent war-related shock in the Middle East, exchange rate flexibility should remain the first line of defense against external shocks, including to intensified spillovers from heightened geopolitical tensions.
“Decisive progress on structural reforms remains essential to support private-sector-led growth and strengthen the economy’s resilience. This includes accelerating reforms to improve the business environment and level the playing field to support firms’ capacity to grow, as well as strengthen governance and transparency. The swift and decisive implementation of the State Ownership Policy, which was published in June—including through the acceleration of the divestment agenda in sectors where the State has committed to reduce its footprint—will be critical to leveling the playing field and helping to support job creation and expand opportunities for all Egyptians.
“Work under the RSF continues to advance. The authorities made progress in integrating climate considerations into public investment planning, advancing climate risk analysis in fiscal policy, and supporting reforms to mobilize private climate finance. Further work is also under way to strengthen the financial sector’s approach to climate-related risks, disaster-risk financing, water-resource management, and emissions-reduction frameworks.
“The IMF team would like to thank all its interlocutors for the candid and fruitful discussions and express its appreciation to the Egyptian authorities for their close collaboration and warm hospitality.”
READ MORE: https://www.imf.org/en/news/articles/2026/06/29/pr26231-egypt-imf-staff-reaches-sla-7th-review-eff-2nd-review-rsf
