IMF urges Egypt to maintain tight monetary policy

Remarks come days after Egypt’s central bank decided to keep interest rates steady

David Lipton, first deputy managing director of the IMF. The fund says Egypt should stick to tight monetary policies. Anthony Kwan / Bloomberg

Egypt should maintain tight monetary policy to contain the risk of inflation as a result of fuel and electricity subsidy cuts, the International Monetary Fund (IMF) said on Monday, in a statement that praised progress on reforms tied to a new $2 billion loan.

The IMF’s remark comes days after Egypt’s central bank decided to keep interest rates steady, citing inflationary risks, and after the IMF executive board announced Egypt had made sufficient progress on economic reforms to receive its next loan disbursal.

Egypt kicked off its three-year $12 billion loan programme in late 2016, agreeing to tough reforms such as deep cuts to energy subsidies, new taxes, and a floated currency in a bid to draw back investors who fled after its 2011 uprising.

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“Strong programme implementation and generally positive performance has been instrumental in achieving macroeconomic stabilisation,” IMF First Deputy Managing Director David Lipton said.

He said the country’s near-term growth outlook was “favourable, supported by a recovery in tourism and rising natural gas production.”

Egypt’s strong foreign reserves meanwhile meant it would likely be able to weather “tightening global financial conditions” that have seen a “shift to capital outflows” in emerging markets recent months.

Egypt kicked off its three-year $12bn loan programme in late 2016, agreeing to tough reform measures such as deep cuts to energy subsidies, new taxes, and a floated currency in a bid to draw back investors that fled after its 2011 uprising.

“The healthy level of foreign reserves and flexible exchange rate leaves Egypt well positioned to manage any acceleration in outflows, but this reinforces the importance of a sound macroeconomic framework and consistent policy implementation,” he said.