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UPDATE 1-IMF reaches staff level agreement for second loan installment to Egypt

Egypt@ (Adds details from IMF statement, background)

CAIRO, May 12 (Reuters) - The International Monetary Fund said on Friday it had reached a staff-level agreement with Egypt on a second loan installment that would make available about $1.25 billion.

The IMF approved a $12-billion, three-year loan program to Egypt in November and paid out $2.75 billion of the first $4 billion tranche of the loan.

An IMF team was in Cairo this week conducting a review of Egypt's reform efforts to decide when the next $1.25 billion would be disbursed.

In a statement at the end the IMF visit, team leader Chris Jarvis said: "The IMF staff team and the Egyptian authorities have reached a staff-level agreement on the first review of Egypt's economic reform program supported by the IMF's $12 billion arrangement.

"The staff level agreement is subject to approval by the IMF's Executive Board."

Jarvis said completion of the review would make about $1.25 billion available to Egypt, bringing total disbursements under the program to about $4 billion.

There was no immediate comment from the Egyptian government.

The IMF described the agreement as "a vote of confidence by the IMF staff" in Egypt's reform process, which the Fund said was "off to a good start."

The floating of the Egyptian currency last November, as well as the introduction of a value added tax and reform of energy subsidies had all had significant effects, it said

Foreign exchange shortages are resolved and interbank market activity is recovering, the IMF added.

"Egypt has regained investors' confidence," the statement said, citing strong appetite for Egypts eurobond sale in January, while private sector remittances and portfolio investments had increased considerably.

It said manufacturing was rebounding strongly and exports had increased significantly. Egypt's GDP growth reached 3.9 percent in the first quarter of this year.

The IMF said it supported the Central Bank's objective of bringing inflation -- currently more than 30 percent -- down to single digits over the medium term.

Rising prices present a challenge for President Abdel Fattah al-Sisi and his government, which have pledged to push ahead with sensitive austerity measures like fuel and electricity price hikes.

The IMF said the finance ministry had drafted a "very strong budget" which if enacted by parliament would put public debt on a "clearly declining path to sustainable levels."

The statement said parliament's approval of new industrial licensing and investment laws would help unlock Egypt's growth potential, attract investors, increase exports and industrial production, as well as create well-paid jobs.

The government's reform program, which the IMF supported, would "lay the foundations for strong and sustainable growth that improves the lives of all Egyptians," the statement said. (Reporting by Giles Elgood; Additional reporting by Eric Knecht; Editing by Hugh Lawson and Toby Davis)