Factbox: In-depth look into IMF's 4th review report on Egypt's EFF loan - Economy

Al-Ahram Weekly

a day ago

As Egypt enters a critical phase of its $8 billion Extended Fund Facility (EFF) loan programme with the International Monetary Fund (IMF), new data reveal a sharp increase in the country's external financing needs.
The IMF outlines significant shifts in Egypt's fiscal and structural reform agenda in its latest report, released on Tuesday, on the fourth review of the EFF programme.
These shifts include recalibrated budget targets, lagging divestment efforts, and renewed commitments to tax reform and social protection.
Here, we will break down the key takeaways, risks, and policy actions shaping Egypt's economic outlook amid regional tensions and evolving domestic challenges.
Egypt's external financing needs are projected to increase from an estimated $25.9 billion in both FY2025/2026 and FY2026/2027 to $30.4 billion and then decline to $27.5 billion due to the implications of regional tensions, according to the report.
The IMF also raised its projections for the financing gap the country will experience in FY2025/2026 from $5.2 billion to $8.2 billion.
For the upcoming FY2026/2027, the IMF projected this level to almost double, reaching $6.1 billion compared to an estimated $3.2 billion.
The fourth review of the EFF programme was primarily completed in March. However, the IMF said in July that it will complete both the fifth and sixth reviews in September.
According to the EFF reviews schedule, the upcoming review is set to be completed on 15 September, with the remaining two reviews scheduled for 15 March and 16 September 2026.
Adjusting fiscal targets amid domestic, external pressures
In response to challenging external and domestic conditions, Egypt has recalibrated its short-term fiscal targets.
The primary surplus target for FY2024/2025 remains at 3.5 percent of GDP (excluding divestment proceeds), aligning with the approved budget.
For the current FY2025/2026, the primary surplus target has been lowered to four percent of GDP, a 0.5 percent decrease from earlier programme commitments. The target is set to increase to five percent of GDP in the upcoming FY2026/2027, aligning with previous IMF programme goals.
As per the report, the tax reforms Egypt has adopted are expected to boost revenues by two percent of GDP till FY2026/2027.
FY2025/2026 tax reform package targets +1 percent of GDP, with VAT reform aiming to remove exemptions and reduce rates on a wide scale of sectors, including construction services, sale of non-residential property, crude oil, advertising and media agency services, and excise tax hike on cigarettes.
It also includes withholding tax on free-zone sales to the domestic market (0.10 percent of GDP) and a new small and medium-sized enterprise (SME) tax regime to reduce informality (0.15 percent of GDP).
Further legislated structural tax measures are expected for the FY2026/2027 budget as a new structural benchmark under the EFF programme, with additional VAT exemption removals anticipated to enhance tax equity.
Social protection expansion through reallocated fiscal space
Social protection and development spending is expected to rise by 0.5 percent of GDP by FY2026/2027, with a focus on healthcare, education, and targeted cash transfers.
For Takaful and Karama, total spending on the programme will be increased to 0.4 percent of GDP in the current FY2025/2026, along with ongoing support for basic foodstuffs through ration and bread cards.
The report also highlighted that the social solidarity and cash transfer law, issued in 2024, enables the gradual consolidation of in-kind subsidies into direct cash transfers.
Adjusting fuel prices to free up fiscal space
The government will continue adjusting retail fuel prices toward cost recovery, expected in December 2025, creating additional fiscal room for targeted social assistance.
State Ownership Policy implementation
The State Ownership Policy (SOP) is a central component of Egypt's structural reform agenda under the EFF. It aims to rebalance the economy by reducing the state's economic footprint and boosting private sector activity.
The report noted that the progress in this respect has been sporadic, despite several legislative and procedural steps taken.
A set of four indicators was developed to track SOP progress, meeting the September 2024 structural benchmark.
This includes the private sector's share in investment, credit, and employment, as well as its contribution to GDP growth, and the approval of a new benchmark that incorporates an additional indicator to track divestment from non-strategic sectors.
However, the report said the SOP has seen a limited implementation of critical reforms.
The removal of tax exemptions for state-owned companies has not yet led to noticeable gains in the country's tax revenue. The Egyptian Competition Authority's independence has yet to be legislatively strengthened, along with stalled divestment efforts.
The report revealed that only nine of the 35 state-owned companies announced for sale in early 2023 have been partially divested. Moreover, the pace of divestment slowed in 2024, undermining confidence in the state's support for the private sector.
As a result, USD inflows from divestments for FY2024/2025 were cut from $3 billion to $0.6 billion due to delays. The shortfall was reprogrammed into the final two years of the EFF programme.
New divestment plans and benchmarks
In mid-December 2024, the government announced 11 state-owned companies for divestment in 2025, including two banks and four military-owned entities, following the listing of 30 percent of the CBE's stake in United Bank on the EGX in early December.
Meanwhile, a new structural benchmark has been introduced to ensure the hiring of investment advisors for a subset of these companies' sales, providing tangible progress on divestment goals.
The report also highlighted the growing role of military-affiliated entities in the country's economic activity, including the acquisition of private land and companies.
In this respect, the report stated that this situation sends mixed signals about the government's commitment to private-sector-led growth and contradicts the EFF's objective of empowering the private sector. Thus, it 'must be corrected.'
Overall financing status
The report estimated the total external financing needs to meet Egypt's Net International Reserves (NIR) targets at $11.4 billion for FY2024/2025, ending in June 2025, and $5.8 billion for FY2025/2026. These figures exclude IMF disbursements.
Divestment proceeds are part of the financing plan, but now they have a more backloaded profile as follows:
FY2023/2024: $2 billion (below original projections)
FY2024/2025: $0.6 billion (downward revision)
FY2025/2026: $3 billion (increased to offset earlier shortfalls)
FY2026/2027: $2.1 billion
These upward revisions aim to maintain the total divestment envelope originally agreed upon at programme approval, according to the report.
On the foreign direct investment (FDI) front, the authorities have secured $3 billion in firm FDI commitments for the fiscal year 2024/2025. These FDI inflows will help offset the lower-than-expected divestment revenues and sustain the share of non-debt-creating financing.
The report also noted that $18.3 billion in GCC deposits at the CBE are guaranteed to remain in place until the EFF ends in October 2026. These deposits can only be withdrawn early if used to purchase equities, and the FX proceeds from any equity sales will be retained in the CBE's foreign reserves.
Looking forward, the IMF staff confirmed full financing coverage for the next 12 months. Yet, the continued programme financing hinges on meeting divestment targets, sustaining FDI inflow, and securing further multilateral assistance.
As per the report, Egypt's NIRs exceed its IMF obligations, providing a repayment buffer. It explains that the composition of reserves improved after the conversion of $11 billion in UAE deposits at the CBE into EGP-denominated equivalents under the Ras El-Hekma deal.
The report also stressed that Egypt's fiscal and external positions are improving, supporting continued market access, and sovereign spreads have narrowed significantly since early 2024. These trends underpin confidence in Egypt's ability to repay the Fund.
$1.3 RSF fresh financing for Egypt
The report includes new updates on the resilience and sustainability finance (RSF) loan programme the IMF approved for Egypt in March, upon the country's request, with a total amount of roughly $1.3 billion (49 percent of Egypt's quota at the IMF).
The first review is expected to be completed on 15 September 2025, with three reviews set for the programme till it ends on 15 September 2026. The first tranche is expected to exceed $2.3 million.
The report explained that Egypt contributes only 0.73 percent of global greenhouse gas (GHG) emissions (as of 2022). However, Egypt's GHG emissions have more than doubled since 1990. Due to its large population, Egypt is the third-largest emitter in the MENA region.
The energy sector accounts for over 70 percent of Egypt's national GHG emissions. The current energy supply is heavily fossil-fuel dependent, as 58 percent stems from natural gas, 34 percent from oil, and a minimal contribution from renewables.
The report said the country faces growing energy demand, which worsens the oil and gas trade deficit, and its reliance on natural gas exports also exposes it to transition risks during the global shift to clean energy.
Egypt's requests for waivers
According to the letter of intent Egypt submitted to the IMF concerning the completion of the EFF fourth review, Egypt requested two waivers as follows.
1. CBE Lending to Public agencies:
Deviation from the end-December 2024 target was temporary. Sufficient loan repayments were received in January-February 2025 to bring balances in line with programme targets. As per the report, CBE lending to public agencies accounts for 3.5 percent of the country's GDP.
2. Primary Fiscal Balance (including divestment):
With the shortfall in achieving the end-of-December 2024 quantitative performance criterion, Egypt pledged corrective action by applying 100 percent of proceeds from a $3 billion land sale toward public debt reduction in the current fiscal year. This exceeds the amount needed to offset the shortfall.
The report also noted that 50 percent of the Ras El-Helma $35 billion proceeds went to lowering Egypt's debt ratio.
Meanwhile, it showed that Egypt met the target for the government's overdraft account balance as of the end of December 2024. Out of 17 structural benchmarks, Egypt has met only eight. Authorities have proposed new timelines to fulfil most of the outstanding benchmarks.
Egypt also requested modification of future targets and consequently the revision of quantitative performance criteria for upcoming reviews based on a stronger commitment to revenue-based fiscal consolidation. This comes as it pushes for larger NIR balances to maintain a buffer of approximately 120 percent of the IMF's Assessing Reserve Adequacy metric.
The country also affirmed its willingness to take additional measures if needed and consult the IMF before implementing any policy changes that could affect programme commitments, avoiding policies inconsistent with its objectives.
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