What is a Development Policy Financing Loan?
Development Policy Financing (DPF) Loans are one of the World Bank’s three lending instruments, and are provided alongside other tools, such as technical assistance and analytical work, to support countries in their reform endeavours. DPF loans are extended in response to an official request from a government for support to its national reform program. Proceeds from the loan go into supporting a government’s overall national budget and are disbursed following the Bank’s assessment of the adequacy of a government’s macroeconomic policy framework and its completion of a set of agreed policy actions (also known as prior actions), which are part of national reform efforts designed to have positive social consequences and make a significant impact on poverty.
Why was the “Egypt Inclusive Growth for Sustainable Recovery” DPF Launched?
The reform program implemented between FY2015/2016–FY2018/2019 and the quick response measures undertaken by the Government of Egypt during the past year have helped it weather the COVID-19 crisis thus far. Egypt has managed to boost real GDP growth over the past five years and make considerable improvement in its fiscal and external balances. Still, the government needs to ensure the sustainability of this improvement. Egypt also needs to address longstanding structural challenges facing the economy to broaden the benefits to the Egyptian people by driving down poverty rates.
As with other World Bank engagements, the request for this DPF was made by the Government of Egypt to the World Bank. The design of the DPF builds upon the government’s structural reform agenda under its “Egypt Takes Off” program (FY2018/2019 to FY2021/2022) and the recently launched National Structural Reform Program (NSRP) (FY2021/2022–FY2023/2024).
What does the operation aim to achieve?
The main aim of this DPF is to support the government’s post-pandemic recovery efforts while addressing some of the long-term structural challenges that have affected Egypt’s growth model. The DPF’s objectives are to: (a) enhance macro-fiscal sustainability, (b) enable private sector development, and (c) foster women’s economic inclusion.
The first pillar on Enhancing Macro-Fiscal Sustainability supports improving the management of State-Owned Enterprises through enhanced transparency and reporting. It also strengthens debt transparency and debt management by introducing the regular publishing of a wider range of domestic and external debt data. Lastly, this pillar promotes and empowers a greener and more sustainable economic recovery through establishing the framework for the issuance of green bonds.
The second pillar on Enabling Private Sector Development builds on Egypt’s reforms of the past five years and supports digital and financial inclusion, the streamlining and automation of trade facilitation, and the modernization of bankruptcy processes to improve Egypt’s competitiveness and private sector job creation. The pillar also strengthens the regulatory framework for private sector participation in waste management, which provides a basis for greener and more inclusive development in the sector.
The third pillar on Fostering Women’s Economic Inclusion focuses on legislative and regulatory reforms that promote female participation in the labor force and supports government efforts to address gender-based violence. It includes steps to remove restrictions on women’s participation in different sectors and removes limitations on working hours. The pillar also supports the government’s adoption of a national code of conduct that promotes safe and decent travel for women by rail, with a plan to scale it up to other forms of public transport in subsequent phases.
How does the operation help Egypt respond to the COVID-19 pandemic?
The policy reforms in the operation address a number of important impediments to sustainable private sector-led growth and are important for a sustainable and inclusive economic recovery from the pandemic. In addition, some of the reforms are of particular importance in the short-term. For example, the fintech reform in this DPF supports digital financial activity, the justice reform supports more efficient bankruptcy resolution when firms are distressed, and the three reforms under the gender pillar will support greater opportunities for women, which are particularly important given the severe impact that COVID-19 has had on women.
Who is responsible for the implementation of the reforms?
As the operation’s prior actions have already been implemented by the government as part of a broader national reform program, no further policy actions are required by the government before the DPF proceeds are disbursed. Going forward, technical assistance programs are in place for all the policy areas that this program covers. This will allow the World Bank to continue working closely with the government on the implementation and sustainability of the reforms.
How will the World Bank Group track the execution of supported reforms?
The program outcomes will be monitored using a set of results’ indicators agreed with the government. These indicators seek to assess progress toward the implementation of the policy and institutional measures supported by the DPF. The Ministry of International Cooperation will lead this exercise and consolidate the information or reports required from the different ministries related to reform implementation. After the program is closed, in March 2023, an Implementation Completion Report (ICR) will be prepared to assess the overall progress of the reforms against the results’ indicators. The ICR will be made public.
What are the payment terms of this operation?
The loan will be extended in US dollars on a variable spread for 19 years’ maturity, including a five year grace period. Compared to other borrowing tools available on the financial markets, this loan will help the Government of Egypt improve the overall structure of Egypt’s debt profile, both by extending average maturity and by reducing the average cost of borrowing.