Egypt eyes recovery in forex reserves

CAIRO, Feb 25, (RTRS): Egypt is aiming for a recovery in its foreign exchange reserves which have plunged since the 2011 revolution but faces a huge budget deficit, according to a revised government economic reform programme seen by Reuters on Monday.

The revised programme is vital for resuming negotiations with the International Monetary Fund on a $4.8 billion loan to keep the Egyptian economy afloat.

Cairo and the IMF agreed in principle last November on the loan, based on an earlier version of the reform programme, but talks were suspended in December at Egypt’s behest due to street violence.

The latest programme targets foreign currency reserves of $19 billion by the end of June, climbing to $22.5 billion a year later, according to a copy of the plan seen by Reuters.

Reserves have tumbled to $13.6 billon in January from $36 billion before the overthrow of president Hosni Mubarak in February 2011, and the Egyptian pound has fallen 8.2 percent since the central bank began auctioning dollars at the end of December.

Economists expressed caution about the figures, and whether Egypt could secure IMF help by the end of the financial year in June. “They had their targets before and they didn’t reach them,” said Mona Mansour, chief economist at CI Capital.

“Maybe they are targeting to have the IMF programme by then, but I think it will be difficult. Other than that, they

Initially, officials expected inflation to reach 40 percent by the end of the Iranian year, “but with controlling measures implemented by the central bank, it has remained at this level,” Fars news agency quoted Bahmani as saying.

The report did not describe the measures, which may have included action may have an agreement with regional countries,” she said.

Egypt has secured some funding from Qatar in recent months but this has not halted the fall in reserves or the drop in the Egyptian pound.

Any IMF deal would involve unpopular austerity measures just as Egyptians vote in four-stage parliamentary elections due to be held from April until late June.

However, the programme confirmed the dire state of government finances. It targets a budget deficit for this financial year of 189.7 billion Egyptian pounds ($28 billion), or a huge 10.9 percent of total economic output.

Reforms

Even this assumes economic reforms are made and the deficit would hit 12.3 percent of GDP without such action, it forecast.

Meanwhile, Egypt will resume talks with the International Monetary Fund on financial aid early next month, the country’s investment minister Osama Saleh said on Monday.

“There have been pledges of international and regional support to Egypt and most of these are in progress,” Saleh said in a speech at a financial conference. “Negotiations with the IMF over the $4.8 billion loan will resume in early March.”

Saleh said an agreement with the IMF had almost been in place in December but that a change in public opinion meant it collapsed. “We don’t see any reasons why the Egyptian people should reject to limit consumers’ access to credit and allocations of foreign exchange to ease import bottlenecks.

Bahmani has come under attack from members of parliament over the slide of the rial; in the free market, it lost about a third of its value over 10 days last September to hit a record low against the US dollar. Last month the programme. They will eventually realise that the benefits they will get will outweigh the load they will carry.”

In a wide-ranging talk on Egypt’s economic crisis and efforts to resolve it, Saleh said authorities intended to raise money partly by imposing a 10 percent capital gains tax on initial public offers of shares. “We should get the EFSA (Egyptian Financial Supervisory Authority) approval within days and then will send it to parliament for approval.”

Companies set up as part of major projects, around the Suez Canal and the Upper Egypt Development Corridor, will have to sell shares to the public as a condition of being established, he said.

A law allowing the government to issue sukuk (Islamic bonds) is expected to be passed within a few days, while talks are underway between the investment ministry and the central bank on ways to provide soft loans to small and medium-sized companies, he added.

Saleh estimated that Egypt’s gross domestic product would grow between 3 and 3.5 percent in the current fiscal year through June 30. He said that in five years time, Egypt hoped to be posting annual GDP growth of 7-7.5 percent.

The government’s budget deficit is currently around 10.8-10.9 percent of GDP, he said.

Saleh said Egypt was hoping to absorb investment of 276 billion Egyptian pounds ($41 billion) this year, 170 billion pounds of which would come from the private sector. Bahmani offered to President Mahmoud rejected the offer.

Iran has suffered double-digit inflation rates for most of the past decade. Inflation began rising sharply at the end of 2010, before the latest sanctions were introduced, when the government slashed food and fuel subsidies. resign, but Ahmadinejad