Arab Republic of Egypt: First and Second Reviews Under the Extended Arrangement Under the Extended Fund Facility, Monetary Policy Consultation, and Requests for Waiver of Nonobservance of a Performance Criterion, and Augmentation and Rephasing of Access-Press Release; and Staff Report

ARAB REPUBLIC OF EGYPT FIRST AND SECOND REVIEWS UNDER THE EXTENDEDARRANGEMENT UNDER THE EXTENDED FUNDFACILITY, MONETARY POLICY CONSULTATION, ANDREQUESTS FOR WAIVER OFNONOBSERVANCE OF APERFORMANCE CRITERION, AND AUGMENTATIONAND REPHASING OF ACCESS—PRESS RELEASE;ANDSTAFF REPORT April2024 In the context of theArab Republic of Egypt—First and Second Reviews Under theExtended Arrangement Under the Extended FundFacility, Monetary Policy Consultation,and Requests for Waiver of Nonobservance of a Performance Criterion, and Augmentationand Rephasing of Access, the following documents have been released and are includedin this package: •APress Releaseincluding a statement by the Chair of the Executive Board. •TheStaff Reportprepared by a staff team of the IMF for the Executive Board’sconsideration onMarch 29, 2024, following discussions that endedonMarch7, 2024,with the officials ofEgypton economic developments and policies underpinning theIMF arrangement under theExtended Fund Facility. Based on information available atthe time of these discussions, the staff report was completed onMarch 19, 2024. •AStaffSupplementupdating information onrecentdevelopments. TheIMF’s transparency policy allows for the deletion of market-sensitive information andpremature disclosure of the authorities’ policy intentions in published staff reports andother documents. Copies of this report are available to the public fromInternational Monetary Fund•Publication ServicesPO Box 92780•Washington, D.C. 20090Telephone: (202) 623-7430•Fax: (202) 623-7201E-mail:publications@imf.org Web:http://www.imf.org International Monetary FundWashington, D.C. IMF Executive Board Completes the First and Second Reviewsof Extended Fund Facility Arrangement for Egypt, ApprovesAugmentation of the Arrangement FOR IMMEDIATE RELEASE •The IMF Board today completed the First and Second Reviews of the extendedarrangement under the Extended Fund Facility (EFF) for Egypt and approved anaugmentation of the original program by about US$5 billion (SDR 3.76 billion),allowing the authorities to draw the equivalent of about US$820 million (SDR 618.1million). •A strong economic stabilization plan is being implemented to correct policy slippages.The plan is centered on a liberalized foreign exchange system in the context of aflexible exchange rate regime, a significant tightening of the policy mix, reducingpublic investment, and leveling the playing field to allow the private sector to becomethe engine of growth. •While the recent sizable investment deal in Ras El-Hekma alleviates the near-termfinancing pressures, implementation of the economic policies under the programremains critical to address Egypt’s macroeconomic challenges. Robust delivery onstructural reforms will be critical to lock in the benefits of the improved financingenvironment. Washington, DC–March 29, 2024:The Executive Board of the International Monetary Fund(IMF) completed the first and second reviews of Egypt’s Extended Fund Facility arrangementwith Egypt and approved an augmentation of the original program by about US$5 billion (SDR3.76 billion). This enables the authorities to immediately draw about US$820 million (SDR618.1 million). Egypt’s 46-month EFF arrangement wasapprovedon December 16, 2022. In completing the review, the Executive Board assessed that all but one of the quantitativeperformance targets for end-June 2023 were met. The Board approved the authorities’request for a waiver for non-observance of the June performance criterion on Net InternationalReserves on the basis of corrective actions. Macroeconomic conditions since the approval of the program have been challenging, withrising inflation, foreign exchange shortages and elevated debt levels and financing needs. Thedifficult external environment generated by Russia’s war in Ukraine was subsequentlyaggravated by the conflict in Gaza and Israel, as well as tensions in the Red Sea. Thesedevelopments increased the complexity of macroeconomic challenges and called for decisivedomestic policy action supported by a more robust external financing package, including fromthe IMF. Within this context, external shocks and delayed policy adjustment weighed on economicactivity. Growth slowed to 3.8 percent in FY2022/23 due to weak confidence and foreignexchange shortages and is projected to slow further to 3 percent in FY2023/24 beforerecovering to about 4½ percent in FY24/25. Inflation remains high but is expected to easeover the medium term as the policy tightening takes hold. The recently announced US$35 billion investment deal from an Abu Dhabi-based investmentand holding company in Ras El-Hekma has alleviated near-term balance of paymentpressures and, if used judiciously, will help Egypt rebuild buffers to deal with future shocks.Nonetheless, steadfast implementation of the economic policies under the program remainscritical to sustainably address Egypt’s macroeconomic challenges, as does robust delivery onstructural reforms to