IMF Team Discusses $4.8 bn Rescue Loan for Egypt

An International Monetary Fund (IMF) team resumed long delayed negotiations with Egypt on a $4.8 billion loan to ease an economic crisis in the most populous Arab country, a government official said. After two years of political upheaval, foreign currency reserves have fallen to critically low levels, limiting Egypt's ability to buy wheat, of which it is the world's biggest importer, and fuel. resident Mohamed Morsi's government initialled an IMF deal in November but postponed ratification in December due to unrest ignited by a political row over the extent of Morsi's powers.

The IMF mission met officials at the Finance Ministry and was expected to meet Prime Minister Hisham Qandil later. Cairo must convince the global lender it is serious about reforms aimed at boosting growth and curbing an unaffordable budget deficit. That implies tax hikes and politically risky cuts in state subsidies for fuel and food including bread.

An IMF deal has long eluded Egypt, despite on-off talks first with an army-led government and now with Morsi's Muslim Brotherhood-led administration. Economists say the IMF appears to question whether Egypt has the political consensus needed to enact reforms, doubts that months of turmoil have done nothing to ease. Parliamentary elections that were due to start this month have been pushed back until October and a new legislature may not be in place until December.

Finance Minister Al-Morsi Al-Sayed Hegazy said on Monday the government hopes to have a loan agreement completed by the IMF's spring meetings, held later in April. But IMF officials have not given a timeline and some private economists say a full deal before the parliamentary polls seems unlikely.

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 smart cards until July 1 and some reports say that date may be pushed back further.

The Egyptian pound has lost a tenth of its value against the dollar this year and is trading even lower on the black market, driving up inflation. Shortages meanwhile threaten to exacerbate tension in the street, where Morsi's opponents have been airing political grievances in protests that frequently turn violent.

Pound tumbles
The United States and the European Union have urged Egypt to build a broad political consensus in support of reforms required by an IMF programme, but the main political parties have become increasingly polarised. US Secretary of State John Kerry said on Tuesday that Egypt was at a "tipping point", telling reporters: "We share a very real concern in the Obama Administration about the direction that Egypt is apparently moving in."

"We have been working very, very hard in the last weeks to try to get the government of Egypt to reach out to the opposition, to deal with the IMF, to come to an agreement which will allow Egypt to begin to transform its economy and improve the lives of its citizens," Kerry said.

The leftist Popular Current party led by Hamdeen Sabbahi, who came third in last year's presidential election, denounced the proposed IMF loan in a statement on its Facebook page and joined calls for demonstrations outside the Supreme Court on Wednesday against the IMF visit. "This loan will lead to colonisation and the continued dependency of the Egyptian economy," Popular Current said, adding it would have negative effects on the economy and on the social and living conditions of Egyptians.

Seeking to protect the Egyptian pound, the central bank has raised interest rates, increasing the cost of borrowing needed to finance a state deficit expected to hit 12.3 percent of GDP without reforms. A medium-term economic plan submitted to the IMF envisages cutting the deficit to 9.5 percent in the 2013-2014 fiscal year beginning in July.

The financial crunch has forced the government to cut back on fuel imports, leading to shortages that have caused transport disruptions and power cuts. To ease shortages, Cairo has said it aims to import oil from Iraq and neighbouring Libya while paying off some of the money it owes to foreign energy firms. Egypt has also cut back on wheat imports, running down grain reserves in the hope that a bumper harvest will be enough to feed its 84 million people.

A government statement on Wednesday said wheat reserves have fallen to 2 million tonnes, enough to last 81 days. On March 27, the government said it had a stock of 2.116 million tonnes, or 85 days' supply. Without a deal, Cairo could perhaps still limp along for several more months with help from friendly Arab states such as Qatar, but it would not be comfortable.