Egypt’s government outlined an economic plan to win International Monetary Fund loans, with steps to narrow the budget deficit toned down to avoid inciting further unrest.
Sales taxes will increase on six commodities instead of the 25 suggested earlier, while the income-tax exemption will rise to 12,000 Egyptian pounds ($1,780) from 9,000 pounds, Prime Minister Hisham Qandil told reporters in Cairo Monday. The plan would “gradually” increase fuel prices for energy-intensive industries, aiming to cap the deficit at 10.9 percent this fiscal year and narrow it to 9.5 percent in the next.
It’s the latest bid by President Mohammad Mursi and his government to complete a $4.8 billion IMF loan request whose delay has compounded the country’s economic crisis. The plan was released against a backdrop of mounting unrest and outbursts of violence. Opposition groups have objected to Mursi’s commitment to parliamentary elections starting in April and resisted his efforts for a dialogue to bridge differences.
Yields on Egypt’s benchmark dollar bonds surged to an eight-month high Monday as the political standoff persisted, and the main stock index fell to the lowest this month.
“If no measures are taken to deal with the current situation, the Egyptian economy will face grave dangers as the unemployment problem will be aggravated in the absence of investments or the financial surplus necessary” for job creation, the government said in the program distributed Monday to reporters at the Cabinet.
Egypt signed a standby agreement with the IMF for the loan in November, then requested a delay and suspended the tax increases it had linked to the Fund’s program. The government cited public opposition to its proposals for the U-turn, which came amid growing street protests against Mursi and his proposed new constitution, approved in a December referendum.
The country’s budget deficit would widen to 12.3 percent without the program, the government said. It includes a 0.1 percentage-point fee for buyers and sellers of stocks. The six items that will see sales tax increases include alcoholic and non-alcoholic beverages, cigarettes, iron and cement.
Egypt’s economy has stalled in the two years since the uprising against former President Hosni Mubarak, as tourists and investors stayed away and foreign reserves plunged. Officials and investors see the IMF loan as key to rebuilding confidence and securing other donor funds.
The economic program targets increasing reserves to $19 billion by the end of next fiscal year, from $13.6 billion last month, Investment Minister Osama Saleh said. He told reporters in Dubai that the country’s financing gap might widen “slightly,” while the program would also include a 10 percent tax on initial public offerings.
Mursi, in an interview aired early Monday on the Al-Mehwar satellite channel, called on the opposition to meet for talks on the parliamentary elections, which he says are vital to stabilize the nation.