The group added that there was a growing national consensus on the need for economic reform.
“Egypt faces many challenges. During the prolonged political transition, growth fell and unemployment and poverty increased to high levels. Budget deficits grew and external pressures led to a fall in foreign exchange reserves,” read the group’s statement.
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“The authorities recognise these challenges and have set appropriate economic objectives, including raising growth and steadily reducing inflation.”
The IMF said the government was seeking to reduce the budget deficit to 8–8½ per cent of GDP and the budget sector debt to 80–85 per cent of GDP by 2018/19.
According to the group, the government of Egypt intends to increase spending on health, education, and research & development as mandated by the constitution, as well as on infrastructure.
Structural reforms planned by the authorities focused on improving the business climate, promoting investments and financial sector development, while addressing poverty and social gaps.
The authorities are also seeking to improve Egypt’s external position, though additional external financing will still be needed through the medium term.
“The authorities have already begun to take the action needed to achieve their objectives. They have begun bold subsidy and tax reforms, are pursuing a disciplined monetary policy, expanding social policies, and have initiated wide-ranging regulatory and administrative reform efforts to improve the business environment and boost investment,” added the IMF.
“Policies implemented so far, along with a return of confidence, are starting to produce a turnaround in economic activity and investment. We now project that growth will reach 3.8 per cent in FY 2014/15.”
According to the group, the country saw headline inflation rising to 11.8 per cent in October.
“Swift interest rate action by the Central Bank of Egypt (CBE) has helped contain the second-round impact of those increases, which were associated with subsidies reform, as reflected in core inflation which fell to 8.5 percent. This has helped anchor inflation expectations,” said the group.
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The IMF also called for a more flexible exchange rate which is policy focused on achieving a market-clearing rate and avoiding real appreciation would improve the availability of foreign exchange, strengthen competitiveness, support exports and tourism, and attract foreign direct investment.
This would foster growth and jobs and reduce financing needs.
“The banking system has been resilient in the face of economic stagnation in recent years," said the IMF.
"The CBE has appropriately reinforced the supervisory framework by strengthening regulations, further developing on-site and off-site supervision, and advancing implementation of Basel II and III. We welcome the CBE’s commitment to increase the timeliness and scope of disclosure of banking sector data."