IMF, Egypt reach agreement to unlock $1.2bn to boost fragile public finances | Poverty and Development

The Washington, DC-based lender says Cairo agreed to raise the tax-to-income ratio and accelerate the divestment of state-owned firms.

The International Monetary Fund (IMF) has announced that it has reached an agreement with Egypt to open an estimated $1.2bn to finance the country’s troubled finances.

The Washington, DC-based lender said on Tuesday it had reached a “staff-level agreement”, subject to approval by the Executive Board, after Cairo outlined measures to improve macroeconomic stability.

Egyptian authorities have agreed to raise the income tax rate by two percent of gross domestic product (GDP) over the next two years and accelerate the divestment of state-owned companies, among other measures, the lender said.

“A comprehensive package of reforms is needed to ensure that Egypt rebuilds its financial constraints to reduce credit risk, and create more space to increase social spending, especially in health, education and social protection,” said Ivanna Vladkova Hollar, who led the IMF’s negotiations with Egypt. . authorities.

The two sides also agreed on the need to accelerate reforms to improve the business environment, said Hollar.

“Regarding this, strong efforts are needed to level the playing field, reduce the state’s economic status, and increase the confidence of the private sector to help Egypt attract foreign investors and develop its overall economic potential,” he said.

Egypt in March agreed to receive an $8bn loan from the IMF in phases based on economic reforms, extending it to a $3bn, 46-month deal due in December 2022.

As part of the terms of the loan, Cairo agreed to allow its currency to depreciate significantly and let the exchange rate be determined by market forces.

Egypt has been dealing with double-digit inflation and foreign exchange shortages amid economic challenges including the decline in Suez Canal revenues, the war in Ukraine and the fallout from the COVID-19 pandemic.