The International Monetary Fund (IMF) has reached a staff-level agreement with Egypt on the fifth and sixth reviews under its Extended Fund Facility (EFF) and the first review under the Resilience and Sustainability Facility (RSF), marking a key milestone in the country’s economic reform programme.
The agreement followed an IMF mission to Cairo from December 1 to 11, led by Ms. Vladkova Hollar, and subsequent virtual engagements with Egyptian authorities. The deal clears the way for the completion of the pending programme reviews, subject to approval by the IMF Executive Board.
In a statement at the conclusion of the talks, the IMF said Egypt’s stabilisation efforts were delivering “important gains,” with the economy showing clear signs of recovery despite a difficult regional security environment and heightened global uncertainty.
Growth Rebounds Across Key Sectors
According to the IMF, Egypt’s economy expanded by 4.4 percent in the 2024/25 fiscal year, up sharply from 2.4 percent the previous year. The recovery has been broad-based, driven by strong performance in non-oil manufacturing, transportation, finance and tourism.
Momentum has carried into the current fiscal year, with growth accelerating to 5.3 percent year-on-year in the first quarter of FY2025/26, signalling improving underlying economic conditions.
Stronger External Position and Capital Inflows
The IMF noted a marked improvement in Egypt’s balance of payments, even in the face of adverse external developments. The current account deficit narrowed as remittances and tourism receipts remained resilient, while non-oil exports recorded strong growth.
External financial conditions also eased significantly in 2025. Non-resident investments in local-currency debt rose to around US$30 billion, while foreign exchange reserves climbed to US$56.9 billion, strengthening the country’s external buffers.
Fiscal Discipline Holds, but Revenue Challenges Persist
Fiscal performance has remained robust, with Egypt recording a primary surplus of 3.5 percent of GDP in FY2024/25. Tax revenues grew by 36 percent in that fiscal year and by 35 percent during July–November of FY2025/26, reflecting reforms to widen the tax base, improve compliance and streamline exemptions.
However, the IMF cautioned that Egypt’s tax-to-GDP ratio, at 12.2 percent, remains low by international standards. It said sustained efforts would be needed to raise revenues further, reduce public debt and preserve space for targeted social spending.
Looking ahead, the authorities are targeting a higher primary surplus of 4.8 percent of GDP in the current fiscal year and 5 percent in FY2026/27. A growth-friendly tax reform package, expected to be approved by cabinet in January 2026, is projected to boost revenues by about one percent of GDP next year.
Careful Monetary Easing Amid Inflation Risks
On monetary policy, the IMF said the Central Bank of Egypt (CBE) has maintained an appropriately tight stance, adopting a cautious and gradual easing cycle to support ongoing disinflation.
While headline urban inflation fell to a 40-month low in September, it edged up slightly to 12.3 percent year-on-year in November. The IMF stressed that easing should remain carefully managed, as disinflationary pressures are not yet fully entrenched.
The Fund attributed recent inflation trends to tight fiscal and monetary policies, the elimination of foreign exchange shortages, and the fading effects of earlier currency depreciation.
Banking Sector Governance and State Role
The IMF highlighted the need for continued strong governance in Egypt’s banking system, particularly given the large presence of state-owned banks. It said robust oversight is critical to maintaining financial health, strengthening monetary policy transmission and promoting competition.
In this regard, the CBE has committed to completing third-party reviews to ensure best practices are followed across the sector.
Private Sector-Led Growth and Structural Reform
With macroeconomic stabilisation now taking hold, the IMF urged Egypt to accelerate reforms aimed at shifting toward a more competitive, private sector-driven growth model.
Discussions focused on the government’s National Narrative for Economic Development, which prioritises easing the business environment, improving trade facilitation and streamlining tax procedures. Private sector participants, the IMF noted, have already acknowledged progress in some of these areas.
However, the Fund said further efforts are needed to reduce the role of the state in the economy, including faster progress on divestment and avoiding the expansion of state-owned enterprises into new commercial activities.
Climate and Sustainability Reforms Advance
Under the RSF, the IMF said Egypt is making good progress on climate-related reforms. Authorities have already implemented key measures, including publishing a renewable energy implementation schedule and issuing a directive requiring banks to monitor and report exposure to climate transition risks linked to the EU’s Carbon Border Adjustment Mechanism.
Additional reform measures under the RSF are progressing, reinforcing Egypt’s efforts to integrate climate resilience into its economic framework.
The IMF mission expressed appreciation to the Egyptian authorities for what it described as constructive engagement, noting that continued reform momentum will be critical to sustaining stability and unlocking durable, private sector-led growth.
