Egypt in talks for bigger loan
EGYPT is seeking to increase its previously requested $4.8bn loan from the IMF to cover its soaring budget deficit, the planning minister said in reports yesterday.
EGYPT is seeking to increase its previously requested $4.8bn loan from the International Monetary Fund (IMF) to cover its soaring budget deficit, the planning minister said in reports yesterday.
“Egypt will intensify its efforts in the spring meetings of the IMF in the period from April 16-21 to receive additional funding to cover the financing deficit until mid-2015,” Ashraf El-Araby said in remarks carried by independent newspaper Al-Masry Al-Youm.
An IMF delegation is in Cairo for loan talks and Mr Araby is one of the ministers in the negotiations. “There are ongoing discussions to increase the loan, estimated at $4.8bn, but it may rise, especially with the increase in the budget deficit to $20bn,” he reportedly said.
The talks come as clashes broke out yesterday outside Cairo’s Coptic cathedral after the funeral prayers for four Christians killed in sectarian clashes at the weekend, according to witnesses. Mourners, who were chanting against the ruling Muslim Brotherhood, were stoned as they came out of the cathedral.
Christian-Muslim confrontations have increased in Muslim-majority Egypt since the overthrow of former president Hosni Mubarak in 2011 gave freer rein to hardline Islamists repressed under his rule.
The minister told Al-Mal financial daily that if a deal is not reached before next month, talks will be postponed until October, when parliamentary elections are expected to start. It was the first time a minister had confirmed that the government was seeking to increase the loan.
Finance Minister Al-Mursi AlSayed Hegazy was quoted last Tuesday as denying that Cairo had requested any change after a senior IMF official said the amount could be raised if Egypt needed.
Asked whether the loan would be increased to $5.5bn, Mr Araby was quoted in Al-Shorouk daily as saying that figure was wrong, without giving details, and any increase would depend on the expected rise in the budget deficit. Egypt reached a provisional agreement with the global lender for $4.8bn in November but President Mohamed Mursi halted implementation of the economic conditions the following month after violence erupted over the extent of his powers.
The economic picture has worsened significantly since then, widening the fiscal gap that needs to be plugged, while the Egyptian pound has fallen nearly 10% against the dollar this year. Foreign reserves dipped further to $13.4bn at endMarch, down from $13.5bn a month earlier, equivalent to less than three months’ imports.
Egypt must convince the IMF it is serious about reforms. That implies tax hikes and politically risky cuts in state subsidies for fuel and food, including bread.
Just before the visit, the government announced an increase in the price of subsidised cooking gas. But it has postponed plans to ration subsidised fuel using smartcards until July 1, and some reports say that date may be pushed back further.
Egyptian and foreign analysts predict a long, hot summer of power cuts, fuel shortages and a risk of food riots if Egypt has to struggle on without IMF help. Foreign investment has dried up and tourism has shrunk since a popular uprising toppled Mubarak in 2011.
Economists say Egypt would be entitled to a much bigger loan if recent IMF support for Morocco and Jordan is any precedent.
Morocco, which has a far smaller quota, received a $6.2bn precautionary line of credit last year — about 700% of its quota. Jordan, with less than one-fifth of Egypt’s quota, received a $2bn loan — about 800% of its quota. The size of IMF financial support also depends on the scope of the accompanying economic reform plan and the likelihood of the programme going off course.
Diplomats say that without a greater political consensus, it will be hard for Mr Mursi’s Muslim Brotherhood-led government to enforce unpopular economic measures, especially in the run-up to parliamentary elections. Reuters