Egypt seeks bigger IMF loan to cover soaring deficit

Reuters, CAIRO

Mon, Apr 08, 2013 - Page 15

Egypt is seeking to increase its previously requested US$4.8 billion loan from the IMF to cover its soaring budget deficit, the planning minister said in comments carried by two local newspapers 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,” Egyptian Planning Minister Ashraf El-Araby said in remarks carried by al Masry al Youm newspaper.

“There are ongoing discussions to increase the loan, estimated at US$4.8 billion, but it may rise, especially with the increase in the budget deficit to US$20 billion,” he was quoted as saying.

The minister told al-Mal daily financial newspaper that if a deal with the IMF is not reached before next month, talks will be postponed until October, when parliamentary elections are expected to start. An IMF delegation is currently in Cairo for loan talks.

After two years of political turmoil, Egypt is struggling with an economic crisis and a high budget deficit. Foreign currency reserves are critically low, limiting its ability to import wheat and fuel. An IMF delegation resumed long-delayed talks with the government on Wednesday on a loan, which would throw Egypt a financial lifeline and potentially unlock a much larger amount in foreign aid and investment.

“The economic situation has become worrisome and quick measures are needed to restore [economic] activity,” al-Araby said, according to MENA, the state news agency.

Al-Araby described the IMF talks as “positive” and said he hoped Egypt would reach a deal in principle with the global lender within two weeks, MENA said.

The IMF has made no comment on the negotiations and set no deadline for their conclusion.

Cairo reached a provisional agreement with the IMF in November, but Egyptian President Mohamed Morsi halted implementation of the economic conditions the following month amid political violence over the extent of his powers, suspending an unpopular increase and widening of the sales tax on goods and services.

Economic conditions have worsened significantly since November, widening the fiscal gap that needs to be plugged, while the Egyptian pound has depreciated.

Foreign reserves dipped further to US$13.4 billion at the end of last month, the central bank said on Thursday, down from US$13.5 billion a month earlier, equivalent to less than three months’ imports.

The Egyptian pound has lost nearly a tenth of its value against the US dollar on the official market this year and has fallen more sharply on the black market in the last few days because of dwindling supplies of the US currency.

Egypt must convince the IMF 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.