Egypt Takes Steps to Address Government Dependence on Central Bank Lending as IMF Approves $8 Billion Financial Support

The International Monetary Fund (IMF) has released a report on Egypt’s efforts to address the government’s reliance on overdraft facilities from the central bank and off-budget public sector activities. The report was issued four weeks after the IMF approved an $8 billion financial support program for Egypt.

One of the main areas of focus in the report was Egypt’s commitment to addressing weaknesses such as the central bank’s lending to public bodies. Since December 2022, Egypt has taken steps to tighten monetary policy, implement a flexible exchange rate system, and raise gasoline and fuel prices. However, these measures had unintended consequences as a return to a fixed exchange rate in February 2023 resulted in negative economic impacts.

The report highlighted several issues facing Egypt’s economy, including a shortage of foreign exchange, high inflation, and restricted imports due to the fixed exchange rate. Delayed interest rate increases and excessive investment in national projects had also contributed to inflationary pressures and exchange rate problems. Additionally, significant lending by the central bank to government bodies outside of the Ministry of Finance had put pressure on interest rates and exacerbated inflationary pressures.

Despite these challenges, Egypt remains committed to addressing its economic issues through various measures. The IMF board meeting in March 2024 noted that Egypt’s recent investment deal with the UAE is a positive development that could help boost its economy. In conclusion, the report outlined that while there are still challenges facing Egypt’s economy, it is taking steps towards stabilization and sustainable growth.