The US on Sunday said it would give Egypt US$190 million in budget aid after Egyptian President Mohamed Morsi promised to take the painful economic reforms needed to secure an IMF loan.
US Secretary of State John Kerry announced the funding after meeting Morsi and acknowledged Egypt’s “extreme needs” as the Islamist government struggles with a slide in currency reserves to worryingly low levels and a soaring budget deficit.
Cairo says it wants to reopen talks with the IMF about a US$4.8 billion loan, which was agreed on in principle in November last year, but suspended at Cairo’s request due to violent street protests the following month.
“In light of Egypt’s extreme needs and President Morsi’s assurance that he plans to complete the IMF process, today [Sunday] I advised him the United States will now provide the first US$190 million of our pledged US$450 million in budget support funds,” Kerry said in a statement.
Two years after the fall of former Egyptian president Hosni Mubarak, the nation is deeply split between the ruling Islamists and the leftist and liberal opposition parties, most of which have said they will boycott parliamentary elections due to start next month.
Kerry said the funds were “a good-faith effort to spur reform and help the Egyptian people at this difficult time” and that it was “paramount, essential, urgent” that the economy get back on its feet.
However, the sum is dwarfed by the budget deficit, which is growing rapidly as a slide in the Egyptian pound pushes up the cost of subsidizing energy and food, much of which has to be imported using US dollars.
In a reform program Egypt is sending to the IMF, Cairo targeted a deficit of 189.7 billion Egyptian pounds (US$28 billion), or 10.9 percent of economic output, for this fiscal year. Even this assumes economic reforms are made and the deficit would hit 12.3 percent of GDP without such action, it forecast.
The US$190 million is part of a US$1 billion pledge made by US President Barack Obama in 2011 after Egypt’s popular uprising.
Egypt’s turmoil has frightened away foreign investors and tourists — a major source of the foreign currency it needs to pay for wheat and fuel imports.
On Sunday, a Cairo appeals court ordered a politically fraught retrial of Mubarak, his sons and top aides to begin on April 23, nine days before elections are due.
Mubarak was jailed for life for ordering the killing of demonstrators in 2011, but was granted a retrial in January.
Egyptian Minister of Finance Morsi el-Sayed el-Hegazy was optimistic that an IMF agreement could be sealed before the four-stage lower house poll gets under way.
Economists are divided between those who see such a timetable as overoptimistic and those who believe Egypt cannot hold out much longer without help.
Foreign currency reserves tumbled to US$13.6 billion in January from US$36 billion before the fall of Mubarak, and the Egyptian pound has dropped 8.2 percent since the central bank began auctioning US dollars at the end of December last year.
Reserve figures due out this week are expected to show a continuing slide below US$15 billion — the amount needed to fund three months’ imports, economists said.
However, the price of any deal is likely to be high. Egypt is sending projections to the IMF of huge increases in gasoline and diesel prices as it comes under pressure to curb energy subsidies, a Cabinet official said on Sunday.