IMF discusses ex post assessment of Egypt’s exceptional access under 2020 stand-by arrangement

Washington, DC: The Executive Board of the International Monetary Fund (IMF) met today to discuss the ex post evaluation (EPE) of Egypt’s exceptional access under the agreement confirmation of 2020.

The IMF’s financial support to the Egyptian authorities’ policy response to the COVID-19 pandemic in 2020 included exceptional access to Fund resources, leading to an EPR of the 2020 Stand-By Arrangement (SBA) which was approved by the Board of Directors on June 26, 2020 (Press Release No. 20/248). The EPR assesses whether the program objectives under the 12-month arrangement were met, whether the macroeconomic strategy, program design and financing were appropriate to address the challenges Egypt was facing in the time, and whether the program was consistent with IMF policies.

In early 2020, Egyptian authorities launched a broad policy response to address the immediate and severe economic disruption caused by the COVID-19 pandemic, which threatened to undo Egypt’s hard-won achievements in regaining macroeconomic stability. A central element of the authorities’ response to the crisis was a request for financial assistance from the IMF in April 2020 under the Rapid Financing Instrument (RFI) (press release n° 20/215) followed by a SBA. The overriding objective of IMF support was to maintain macroeconomic stability amid the crisis, allowing for the easing of fiscal, monetary and financial policies to support the crisis response and thereby achieve health and social policy objectives during the pandemic. The SBA aimed to safeguard medium-term fiscal sustainability and maintain momentum in selected areas of structural reform, building primarily on initiatives launched during the 2016-2019 Extended Financing Mechanism (EFF).

The report finds that the SBA achieved its primary objective of maintaining macroeconomic stability and that policy implementation was broadly in line with program objectives, although exchange rate variability remained limited. External and internal confidence has been strengthened and the quantitative objectives of the program have been largely achieved. Both SBA exams were concluded on time and all program requirements were met. While some of the governance commitments regarding COVID-19 related expenditures have been implemented, others remain outstanding. The targeted program of structural reforms supported by the SBA has been fully implemented. Going forward, decisive progress on deeper reforms is needed to foster private sector development, improve governance and reduce the role of the state. The Fund’s policies and procedures for funding under exceptional access were followed. The SBA expired on June 25, 2021.

Board assessment[1]

Directors welcomed the Ex Post Evaluation (EPE) of Egypt’s exceptional access to IMF resources under the 2020 Stand-By Arrangement (SBA). two stages – Egypt’s emergency funding request under the Rapid Financing Instrument (RFI) followed by the SBA – was an example of the Fund’s agile support to its members during the COVID-19 pandemic.

Directors agreed that the SBA had achieved its primary objective of maintaining macroeconomic stability in Egypt despite the severe disruptions caused by the pandemic. They noted that policies have been relaxed to account for emergency spending on health and social protection, while preserving fiscal sustainability. Administrators were pleased that all program requirements were met and that both reviews were completed on time.

Directors observed that a better-than-expected external environment, coupled with the implementation of policies under the agreement, has bolstered domestic and external confidence. They agreed that prudent macroeconomic projections, the authorities’ commitment to fiscal discipline and a well-targeted structural reform program were important factors for the successful conclusion of the SBA.

Directors agreed that policy implementation under the SBA was broadly consistent with program objectives. However, while noting the authorities’ objective of boosting confidence through an overall stable exchange rate, they considered that greater exchange rate variability during the SBA could have been entrenched to avoid a build-up of external imbalances. and facilitate shock adjustment. In this regard, Directors welcomed the authorities’ recent communications on the role of exchange rate flexibility in the policy toolkit.

In retrospect, Directors noted that the program design could have better captured upside risks as they materialized. Additionally, they saw the benefits of a broader definition of foreign reserve objectives and a more comprehensive discussion of burden sharing. Directors considered that the structural conditionality of the SBA was appropriate given its short duration and given its primary objective of maintaining macroeconomic stability. While noting the trade-offs involved in a short-lived program, overall they agreed that a short-lived SBA was the appropriate choice given the uncertainties prevailing at the time. Directors called on the authorities to meet commitments on the governance of COVID-19-related expenditures.

Directors agreed with the EPR findings that the authorities have demonstrated a strong track record in implementing IMF programs. They also agreed that the SBA was conducted in accordance with Fund policies and procedures and welcomed the rigorous application of the exceptional access framework and risk management procedures.

Looking ahead, Directors noted Egypt’s continued vulnerability due to a heavy public debt burden and large gross financing needs, and stressed that decisive progress on deeper fiscal and structural reforms is needed to boost the economy’s competitiveness, improve governance and strengthen its resilience to shocks. They noted that this UPR should inform ongoing discussions on the Fund’s future engagement with Egypt.

[1]At the end of the discussion, the Managing Director, as Chairman of the Board of Directors, summarizes the points of view of the Executive Directors, and this summary is transmitted to the authorities of the country. An explanation of all qualifiers used in the summaries can be found here:

/Public release. This material from the original organization/authors may be ad hoc in nature, edited for clarity, style and length. The views and opinions expressed are those of the author or authors. See in full here.

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