The International Monetary Fund (IMF) and Egyptian authorities have reached a staff-level agreement on the fourth review under the Extended Fund Facility (EFF) arrangement, paving the way for Egypt to access approximately $1.2 billion subject to approval by the IMF Executive Board.

The Egyptian government has requested to recalibrate its fiscal commitments due to a sharp decline in Suez Canal receipts and ongoing regional tensions. Under the revised plan, the primary balance surplus, excluding divestment proceeds, is expected to reach 4% of GDP in FY 2025/26, half a percentage point lower than previous commitments, before increasing to 5% in FY 2026/27. This adjustment seeks to balance the need for macroeconomic stability with greater social spending to support vulnerable populations and the middle class.

IMF officials emphasized the importance of maintaining fiscal discipline to reduce large interest costs and ensure debt sustainability. Egypt’s efforts to streamline and simplify its tax system were acknowledged, but the IMF highlighted the need for additional reforms to enhance domestic revenue mobilization.

The Egyptian authorities committed to increasing the tax-to-GDP ratio by 2% over the next two years through reforms aimed at eliminating tax exemptions rather than raising rates. These measures are expected to rebuild fiscal buffers, reduce debt vulnerabilities, and create space for increased investment in health, education, and social protection.

The agreement also underscores the need for Egypt to improve its business environment and strengthen private sector participation as a driver of economic growth. Accelerating the government’s divestment program is seen as a critical step in this direction, with Egyptian officials pledging to redouble efforts to attract foreign investment, reduce the state’s economic footprint, and build private sector confidence.

The Central Bank of Egypt (CBE) reiterated its commitment to a flexible exchange rate regime to buffer the economy from external shocks while maintaining tight monetary conditions to combat inflation and moving toward an inflation-targeting framework. Enhancing financial sector resilience, governance, and competition within the banking system were identified as additional priorities.

Head of the IMF mission, Ivanna Vladkova Hollar, commended Egypt’s ongoing policy efforts and highlighted the importance of sustained fiscal consolidation and structural reforms to support economic stability. The funding, once approved, is expected to provide crucial support for Egypt as it navigates a challenging economic landscape and implements reforms to promote sustainable growth and improve living standards.