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The International Monetary Fund (IMF) on Monday released its third review of its $8 billion loan program for Egypt. The country’s economic forecast is encouraging, with medium-term real GDP growth expected to be 5.5%.
This positive outlook is largely based on the structural reforms undertaken by the Egyptian government. These measures are aimed at gradually reducing the role of the state in the economy and supporting the private sector, thereby stimulating growth and innovation.
Inflation, which has been a major challenge for the Egyptian economy, is now showing signs of improvement. The IMF report shows a downward trend over the past four years, with core and headline inflation rates at 24.4% and 25.2% in July, respectively. Fund experts expect this downward trend to continue over the next 12 months.
The monetary policy implemented by the Egyptian authorities appears to be bearing fruit. The key interest rate has been raised consecutively and will peak at 800 basis points in the first quarter of 2024, which is considered sufficient to keep inflation on a downward trajectory. However, the IMF stressed the importance of maintaining a tight monetary policy to ensure that inflation continues to fall.
Despite the currency depreciation following the exchange rate unification, the outlook for public debt is relatively positive. The IMF forecasts a downward trend in the debt-to-GDP ratio. This forecast is based largely on the government’s plan to use half of the Ras Hekma financing (worth $35 billion) to reduce debt.
Egypt’s ambitious goal is to reduce its debt/GDP ratio to below 80% by 2027, compared with 98% in fiscal 2022/2023, according to IMF estimates. This debt reduction strategy, combined with structural reforms and inflation control, should help strengthen the country’s economic stability.
The IMF’s loan program continues to support Egypt’s efforts. The country received a new $820 million in funding following the completion of the third review. The next phase of the program is already being planned, with a fourth review scheduled by September 15, followed by a fifth review by March 15, 2025.
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