Q&A: All You Need to Know about the Macro-financial Assistance and Budget Support Mechanism between Egypt and the European Union

In the framework of the strategic partnership between the Arab Republic of Egypt and the European Union, the Ministry of Planning, Economic Development and International Cooperation is publishing a report on the developments of the partnership for implementing the macro-financial assistance and budget support mechanism.

 

The Macro-financial Assistance and Budget Support Mechanism (MFA) is part of the financial package announced during the Egyptian-European Summit in March 2024, between H.E. President Abdel Fattah El-Sisi and H.E. Ms. Ursula von der Leyen, President of the European Commission.

 

The package amounts to €7.4 billion, of which €5 billion falls under the macro-financial assistance and budget support mechanism, available until 2027. Additionally, there's €1.8 billion for private sector investment guarantees and €600 million in grants for various development sectors.

 

When did the MFA Begin Implementation?

 

Following the announcement of the financial package during the Egypt-EU Summit, the Ministry of Planning and Economic Development and International Cooperation began its role in strengthening the economic pillar of the strategic partnership between Egypt and the European Union and negotiating the mechanism.

 

This was done in coordination with various concerned national entities. In June 2024, H.E. President Abdel Fattah El-Sisi and the President of the European Commission witnessed the signing of the first phase of the mechanism, valued at €1 billion, between H.E. Dr. Rania Al-Mashat, Minister of Planning, Economic Development and International Cooperation, and H.E. Mr. Valdis Dombrovskis, Executive Vice-President of the European Commission.

 

What Measures did the Government Implement to Complete the First Phase of the Mechanism?

 

After the agreement was signed during the Egypt-EU Investment Conference, and over a period of six months, the Ministry of Planning, Economic Development and International Cooperation coordinated with relevant authorities (the Central Bank, Ministries of Finance, Social Solidarity, Manpower, Investment and Foreign Trade, and Electricity and Renewable Energy, as well as the Egyptian Competition Authority, and the Information and Decision Support Center of the Cabinet).

 

This coordination aimed to implement several reforms within the three pillars of the National Structural Reforms Program to obtain the first tranche. These reforms included calculating payroll tax electronically, activating the unified public finance law to set an annual ceiling for general government debt, and promoting sustainable transformation through expanding social protection networks.

 

Has Egypt Received the First Tranche of the Agreement?

 

In early December 2024, H.E. Dr. Rania Al-Mashat announced the European Commission's approval to disburse the first phase of the agreement, valued at €1 billion, after the European Commission's approval and the completion of all procedures. On December 27, 2024, Egypt indeed received the first tranche.

 

What are the Benefits of the Macro-financial Assistance and Budget Support Mechanism for the Egyptian Economy?

 

This mechanism is one of the avenues the Egyptian state is pursuing for budget support to close the financing gap, and mobilize efforts to implement the National Structural Reforms Program, with its three pillars: enhancing macroeconomic stability and resilience, improving the business environment and investment climate, and driving green transformation.

 

These reforms contribute to solidifying macroeconomic stability, maintaining sustainable growth, supporting the corrective policies initiated by the state in March 2024, and strengthening foreign exchange reserves.

 

What is the Current Status of the Second Phase of the Agreement, Valued at €4 Billion?

 

This year, the government began negotiations for the second phase of the macro-financial assistance and budget support mechanism. In this regard, the Ministry of Planning, Economic Development and International Cooperation is holding intensive meetings with national entities and the European Union to determine the structural reforms to be implemented within the framework of the National Structural Reforms Program for the second phase of the agreement.

 

A number of European technical missions have also been hosted, and H.E. Dr. Rania Al-Mashat has held several meetings, most recently with Mr. Jozef Síkela, EU Commissioner for International Partnerships, to follow up on the procedures for obtaining this tranche. Meetings are also being held at the technical level with the European Union and the relevant ministries and entities in Egypt to assess the progress of procedures and reforms. Simultaneously, the European Union is conducting its internal procedures to reach the final agreement.

 

How does the Macro-financial Assistance and Budget Support Mechanism Enhance the Economic Reform Program Implemented by the Government?

 

The state is working to secure funding sources to bridge the financing gap through various avenues. In an effort to secure the least costly sources, the partnership with the European Union provides development financing with very low interest rates and long repayment periods, which extends the debt maturity. This is in addition to other funding sources that the state seeks to enhance through foreign direct investments and increased exports.

 

The Ministry of Planning,Economic Development and International Cooperation operates under a vision to maximize benefits and optimally utilize available resources through public investments and concessional development financing, in light of the state's general direction aimed at creating space for the private sector and supporting development efforts.