IMF highlights Egypt’s economic recovery as it approves largest tranche of its $8B program

Cairo – March 12, 2025: The International Monetary Fund (IMF) recently commended Egypt's efforts to rebuild market confidence and stabilize the economy, citing a recovery in economic activity and progress in restoring foreign exchange reserves to adequate levels.

The IMF shared their expectations for the Egyptian economy in its release on the recently completed fourth review of Egypt’s $8 billion economic program, which cleared the way for the disbursement of $1.2 billion – the largest tranche of the program to date.

This follows a statement from the IMF's Executive Board, which acknowledged Egypt’s progress in stabilizing its economy despite ongoing external challenges.

However, it also highlighted the ongoing fragility of the economic landscape, influenced by regional conflicts and trade disruptions in the Red Sea. The Board also noted Egypt's high debt and gross financing needs, which present significant fiscal challenges in the medium term.

In addition to the review, the IMF Executive Board approved Egypt’s request for an arrangement under the Resilience and Sustainability Facility (RSF), granting access to about $1.3 billion (SDR 1 billion). The Board also concluded the 2025 Article IV consultation with Egypt.

Egypt's economic growth slowed to 2.4 percent in FY2023/2024, down from 3.8 percent in the previous year, but rebounded to approximately 3.5 percent in the first quarter of the current fiscal year (FY2024/2025).

Inflation has been trending downward since September 2023, providing a glimmer of optimism. However, the country’s current account deficit widened to 5.4 percent of GDP during the same period, even as the primary fiscal balance improved by 1 percentage point to 2.5 percent of GDP, due to strict expenditure controls.

The IMF's assessment showed that Egypt’s primary balance surplus (excluding divestment proceeds) is expected to reach 4 percent of GDP in FY2025/2026, with a further increase to 5 percent of GDP in FY2026/2027.

Fiscal consolidation in the first half of FY2024/2025 has been weaker than expected, despite strong growth in tax revenues. The Egyptian authorities are focused on controlling spending in the second half of the fiscal year to meet their end-of-year fiscal target for FY2024/2025.

At the conclusion of the Board's review, IMF Deputy Managing Director and Chair, Mr. Nigel Clarke, made the following statement:

“Since March 2024, the authorities have made considerable progress in stabilizing the economy and rebuilding market confidence despite a challenging external environment marked by persistent and successive external shocks, including regional conflicts and trade disruptions in the Red Sea.”

Clarke noted that while GDP growth shows signs of recovery, inflation is gradually moderating, and foreign exchange reserves are at adequate levels, significant risks remain.

He stressed that fiscal consolidation efforts are on track, with the government achieving a primary fiscal surplus of 2.5 percent of GDP in FY2023/2024, alongside a declining debt-to-GDP ratio.

However, challenges persist, especially high debt levels and the mixed progress on structural reforms that have limited growth potential and constrained private sector development.

To ensure fiscal sustainability, Clarke emphasized the importance of domestic revenue mobilization, streamlining tax incentives, enhancing compliance, and implementing a comprehensive debt management strategy. He also called for strengthening fiscal oversight, particularly regarding off-budget entities, and accelerating divestment efforts.

Looking ahead, the IMF urged Egypt to transition to a new economic model by reducing the state’s footprint, promoting a level playing field, allowing energy prices to reach cost recovery levels, and addressing governance and transparency issues.

A flexible exchange rate, supported by a robust inflation-targeting regime with an independent central bank and sound fiscal policies, is considered essential for economic resilience.

Despite these efforts, Clarke cautioned that risks remain significant and skewed to the downside, with the economy vulnerable to external shocks and domestic policy challenges.

In particular, regional conflicts, trade disruptions, and the potential for social costs associated with reforms in energy prices, subsidies, and tax policies may strain Egypt's fiscal revenues and foreign direct investment.

In response to the IMF’s assessment, Executive Directors emphasized the need for stronger implementation and vigilant monitoring of the program's commitments. They stressed the importance of strong ownership of structural reforms to foster inclusive growth, reduce vulnerabilities, and meet Egypt’s development and social goals.