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Egypt expects $4.8B IMF loan agreement in two weeks

An Egyptian policeman directs the traffic in front of the Egyptian Central Bank offices in Cairo, Egypt, Sunday, Jan. 6, 2013. (AP Photo/Nasser Nasser)

CAIRO: Egypt’s planning minister said Thursday the government expects to reach a final agreement with the International Monetary Fund on a $4.8 billion loan within two weeks, the state news agency MENA reported.

Ashraf al-Araby also said that Cairo had not requested an increase in the amount of the loan, needed to avert a deepening economic crisis.

An IMF delegation resumed long-delayed negotiations with Egypt Wednesday and government officials have said the team is expected to stay until April 15.

The IMF has set no timeline for a deal and some private economists are skeptical that an agreement can be reached before parliamentary elections later this year because of the need to implement unpopular tax rises and subsidy cuts.

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.

Foreign reserves dipped further to $13.4 billion at end-March, the central bank reported, down from $13.5 billion a month earlier, equivalent to less than three months’ imports.

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.

The government reached a preliminary agreement with the IMF on the loan last November but went back on implementing the economic conditions in December amid political unrest over the extent of President Mohammad Mursi’s powers.

In a statement coinciding with the IMF team’s visit, Oil Minister Osama Kamel said the government aims to phase out subsidies for bread, other basic foodstuffs and oil within three to five years.

“We are considering starting to increase salaries and decrease subsidies until we manage to completely eliminate subsidies in three to five years,” Kamal said in an interview with state-run Al-Ahram newspaper.

Just before the visit, the government announced an increase in the price of subsidized cooking gas. But it has postponed plans to ration subsidized fuel using smart cards until July 1 and some reports say that date may be pushed back further.

The Egyptian pound has lost nearly one-tenth of its value against the dollar on the official market this year and has fallen more sharply on the black market in the last few days due to dwindling supplies of the U.S. currency.

The dollar is now worth 17 percent more in unofficial trading than the official rate, said Mohammad Radwan, director of international sales at Pharos Securities.

 
A version of this article appeared in the print edition of The Daily Star on April 05, 2013, on page 5.

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