IMF presses Egypt on privatization, state lending

The Egyptian military’s expanding involvement in economic activities— from land acquisition and private company purchases to the rollout of commercial ventures — was flagged by the International Monetary Fund in its fourth review, released Tuesday, of Egypt’s economic policy since the launch of the 2022 loan program. Military involvement in the economy "needs to be corrected," the IMF’s report stated.

The IMF also criticized the volume of direct central bank lending and Finance Ministry-backed guarantees to state entities, noting particularly that lending to the Egyptian General Petroleum Corporation (EGPC) had become high-risk given the energy deficit.

The international financier has recommended that Egypt reduce state involvement in the economy in successive loan programs since 2016. The publication of the fourth program review comes several months after its completion in March at the government’s request.

Expanding military footprint in the economy

The IMF assessed the country’s  state ownership policy and its efforts to scale back the government’s economic footprint. 

The military owns 97 companies, 73 of which are in the industrial sector alone, according to the report.

The following chart shows the sectoral distribution of these military-owned firms.

Military-owned companies hold up to a 36 percent market share in several non-military products, particularly in the marble, granite, cement and steel industries, according to the IMF report, which added that the commercial reach of these companies has continued to expand even in the last two years, with significant acquisitions reported in the hospitality, energy, utility and steel sectors in 2024.

“While military-owned companies might not hold a dominating share of a sector, competing with the armed forces may deter private investors given the privileges military-companies enjoy,” the report added. 

The IMF also criticized what it described as a stall in the government’s efforts toward divestment from the economy. As a result, projected foreign currency inflows from privatization dropped sharply — from a projected US$3 billion in the third review to just $600 million by the end of the fourth review for fiscal year 2024/25.

To address the shortfall, the IMF and Egypt agreed to a revised timeline for privatization revenues over the remaining two years of the program. 

Under the new plan, Egypt aims to generate $3 billion in foreign currency during FY 2025/26 — all of which will go toward reducing public debt — followed by $2.1 billion in the final year.

The plan should see the government divest from 11 state-owned companies in 2025, including two banks and four military-owned firms, through listings on the Egyptian Exchange. This aligns with a government announcement made in June, though the updated list includes an additional military-owned company. 

The five military-owned entities being offered are Wataniya Petroleum, Safi mineral water, Silo Foods, Chill Out fuel stations, and the National Company for Roads Construction and Development.

Wataniya and Safi have been slated for privatization since 2020, though little progress has been made toward sales.

Since March 2022, total proceeds from the government’s partial or full divestment from state-owned companies across all sectors have only reached around $5.7 billion, according to the report, which comes just months ahead of the government’s expected release of its State Ownership Policy plan.

Twenty-one privatization deals in total have been concluded with estimated revenues of $6 billion, the government said in a May statement.

Despite earlier momentum in 2023, the IMF noted that Egypt’s divestment efforts nearly came to a halt in 2024. “Authorities announced 35 companies for sale in early 2023, but have only divested, in most cases partially, from nine of them,” the report stated.

The following chart shows the extent to which the state implemented the divestment plan, according to the report.

The lack of progress on the privatization program is tied to the subsequent delay of the IMF’s fifth review, which IMF spokesperson Julie Kozack said is to be merged with the sixth program review in comments earlier this month in which she also stressed the need to scale back the state’s economic footprint and accelerate privatization efforts.

Last fiscal year’s limited proceeds from privatization contributed to a shortfall in the state budget’s projected primary surplus by the end of December 2024, the IMF noted. In response, the fund granted Egypt a waiver for this target, accepting a corrective measure proposed by the government: directing all expected privatization revenues this year toward reducing public debt.

Central bank lending

Prime Minister Mostafa Madbuly said earlier in July that the government met all conditions for the fifth review, except for the privatization targets. He attributed this shortfall to challenges in determining the fair market value of state assets.

But the IMF also said it had approved a second waiver for Egypt’s failure to meet a performance benchmark on central bank lending to government entities as of December 2024. The fund accepted the government’s explanation that the deviation was temporary, noting that the Central Bank of Egypt received sufficient repayments in January and February to bring the loan balance back in line with agreed targets.

In this context, "lending" refers to central bank financing made directly to the government, not treasury bills or bond auctions, which involve borrowing from banks and financial institutions. Direct borrowing from the central bank entails money creation and is considered inflationary — a practice known as overdraft borrowing.

Finance Ministry loan guarantees constitute fiscal risk

As for fiscal risks, the report flagged the policy that sees the Finance Ministry guarantee loans from third parties to state-affiliated entities that lie outside the state budget, as well as off-budget financial operations — particularly those carried out by EGPC and the New Urban Communities Authority (NUCA). 

The fund recommended stronger oversight of these entities and tighter financial control by the Finance Ministry to mitigate these risks.

The EGPC in particular was singled out as a major source of fiscal vulnerability. Government guarantees for the petroleum corporation amounted to around 18 percent of Egypt’s GDP, according to the IMF. 

Domestic banks now require government guarantees on all loans extended to the company. EGPC’s outstanding arrears are estimated at $3 billion to $4 billion. Although the report did not specify the nature of these debts,it  linked the issue to the steady decline in oil and gas production since 2022. 

As a result, “EGPC is now importing liquified natural gas on behalf of the government to help meet domestic natural gas needs,” the IMF noted. 

Meanwhile, the EGPC’s largest client — the state-owned Egyptian Electricity Holding Company — “is facing difficulties in paying invoices from the EGPC.”

In response, the government has committed to a comprehensive restructuring plan for the EGPC, which has been approved by the Cabinet, according to the report. The plan includes a defined timeline and is supported by an updated schedule of energy price increases “to provide a clearer roadmap” for reforming the corporation’s finances.

As for NUCA, the report noted a Cabinet decision to freeze its short-term deposits — worth around LE500 billion — held in the Treasury Single Account. The freeze will remain in effect for three years, starting from FY 2024/25, unless the Cabinet issues further instructions.

Concerns over the financial risks posed by off-budget entities were likewise raised in a parliamentary report published in April. The report, which included observations from the Central Auditing Organization on the final accounts for FY 2023/24 and the government’s responses, indicated that the general budget covered loan repayments on behalf of several economic entities operating outside its purview (and therefore without legislative oversight).

In its response, the Finance Ministry said the payments were made through the public debt account because the agency had guaranteed these entities' loans. This clearly indicated that these bodies had failed to meet their loan obligations, a member of the House of Representative’s Planning and Budget Committee told Mada Masr at the time.