By Rachna Uppal

DUBAI (Reuters) – The International Monetary Fund's (IMF) $8 billion programme for Egypt is progressing well, though discussions to further increase the programme size are considered premature by the fund's regional official.

The IMF's loan to Egypt was increased to $8 billion from $3 billion in March as the central bank indicated it would allow its currency to trade freely, amid heightened spillover risks from the Israel-Gaza conflict.

Egypt's President Abdel Fattah al-Sisi warned that the country might need to re-evaluate its expanded loan programme if international institutions fail to consider the extraordinary regional challenges it faces.

When asked about Egypt's ability to meet programme targets, Jihad Azour, the IMF's director for the Middle East and Central Asia, expressed confidence that economic conditions in Egypt were on the mend, declaring it too early to discuss changes to the programme's size.

"The programme is moving in the right direction and is gradually achieving its targets, both in terms of growth recovery and gradual decline in inflation, and a normal functioning of the foreign exchange market," Azour stated in Dubai.

Azour added that strengthening Egypt's economic buffers is crucial to withstand any potential external shocks. Furthermore, Egypt is expected to save nearly $800 million over the next six years due to recent reforms in the IMF's charges and surcharges policy, which will offer additional support.

According to the IMF's latest Regional Economic Outlook report, GDP growth for Egypt is projected to increase to 4.1% by 2025, up from an estimated 2.7% this year, based on assumptions that the Israel-Gaza conflict will ease next year and continued implementation of reforms.

Headline inflation is forecasted to reach nearly 16% by the end of fiscal year 2024/25, down from nearly 40% in September of the previous year.

The IMF's Egypt team plans to visit Cairo in November for the third review of the programme. Managing Director Kristalina Georgieva is also expected to visit to reaffirm the fund's support for Egypt.