Egypt to raise price it pays for local wheat

Investment minister hopes for deal by end-april Bid to lessen reliance on imports

Debt

CAIRO, Feb 28, (Agencies): Egypt’s government said Thursday that it invited an International Monetary Fund delegation to the country in March to resume talks on a $4.8 billion dollar loan desperately needed to boost the ailing economy, the official news agency said.

The Middle East News Agency, MENA, quoted Investment Minister Osama Saleh as saying the government will present the delegation with changes to its economic reform program. He didn’t offer any details on the changes.

Egypt’s ongoing political unrest has cast doubts over its ability to secure the loan, which is considered crucial to shoring up investor confidence and freeing up a wave of loans that Cairo has requested from other lenders.

The loan would cover part of a growing budget deficit. But it would also send an important signal to investors that Egypt is again a safe bet after two years of instability that began with the 2011 uprising that ousted longtime President Hosni Mubarak.

“Egypt was about to seal the deal with the fund in December, but political disturbances halted” talks, Saleh was quoted as saying by state-owned daily Al-Ahram.

Yet loan talks were set back after Egypt backtracked on tax hikes late last year.

Earlier this month, debt rating agency Fitch downgraded Egypt and said the country is not likely to get the IMF loan before parliamentary elections, set to begin in April and run in four stages through June. Fitch said there could be political pushback against austerity measures until the end of the year and others have questioned whether President Mohammed Morsi would have the political will to implement unpopular economic reforms that could hurt his Muslim Brotherhood group at the polls.

Fitch warned that a prolonged delay in implementing an IMF austerity program could lead to a strain on external finances, an abrupt depletion of reserves and a disorderly devaluation of the currency. Another concern is Egypt’s widening budget deficit.

Over the past months, Egypt’s foreign currency reserves sharply declined. The central bank said the reserves fell to $13.61 billion in January from $15.01 billion a month earlier, a $1.4 billion decline that provided stark new evidence of a dangerous deterioration in the economy. Foreign reserves stood at $36 billion before Egypt’s uprising began in January 2011.

Morsi has resisted implementing austerity measures while struggling to contain spreading calls for civil disobedience and strikes across the country. The opposition political group The National Salvation Front has declared it will boycott the upcoming parliamentary elections in a sign that the political turmoil will be prolonged. The group is demanding that Morsi provide assurances on amending the newly adopted constitution, form a national unity government and guarantee free and fair elections.

Separately, Investment Minister Osama Saleh told journalists he expected the deal to be concluded by the end of April.

“We have hope, God willing, that we can, by the end of April complete the loan,” he said. Saleh added that much of the work was done last year and recent changes to the government’s economic reform programme amounted to “light amendments”.

But April is sooner than many economists believe possible, with parliamentary elections due to begin in late that month and go on until late June. They believe the Muslim Brotherhood-led administration will be reluctant to conclude a deal including austerity measures ahead of the vote.

Fitch Ratings said on Wednesday the extended election timetable could delay the agreement until well into the third quarter. It had previously expected a deal in Q2.

Egypt’s foreign currency reserves fell to $13.6 billion in January, less than the $15 billion needed to cover three months’ worth of imports to the country of 84 million people. Foreign exchange reserve figures for February are expected next week.

The budget deficit is meanwhile forecast to hit 12.3 percent of GDP by end-June unless economic reforms are implemented.

Political unrest has caused the Egyptian pound to tumble 8.2 percent against the dollar since the end of last year, and the central bank is rationing the amount of dollars it sells to banks, prioritizing hard currency for essential food imports.

In a summary of its new plans for the economy released this week, the government said it aimed to increase the foreign currency reserves to $19 billion by the end of June, but did not say how. The plan will form the basis of talks with the IMF.