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 Acce

The IMF Executive Board approved a 46-month USD 3 billion Extended Fund Facility (EFF) arrangement for Egypt in December 2022. The EFF-supported program aims to safeguard economic stability, restore buffers, and pave the way for inclusive and private sector-led growth. Following policy slippages, the first and second reviews were delayed. The return to a fixed exchange rate in February 2023 undermined the initial credibility boost from the announcement of a shift to a flexible regime and hampered the execution of other program pillars such as divestment of state-owned assets. It also led to foreign exchange (FX) shortages, a large spread in the parallel market, and constrained imports, all of which fueled inflation and weighed on growth. At the same time, delays in raising the policy rate in response to higher-thanexpected inflation resulted in more negative real rates and financial repression. Continued investment in national projects at a pace inconsistent with macroeconomic stability contributed significantly to foreign exchange and inflation pressures. Spillovers from the conflict in Gaza and Israel and the Red Sea disruptions have exacerbated external pressures and widened further the financing gap. A significant investment deal with Abu Dhabi Developmental Holding Company (ADQ), signed in February, has improved the near-term financial outlook, providing for a more benign external financing environment as the authorities push forward with needed reforms.