Egypt must convince people of need for IMF - Lagarde

ABIDJAN Tue Jan 8, 2013 5:11pm EST

Egypt's President Mohamed Mursi (R) speaks with IMF Managing Director Christine Lagarde during a meeting at the Presidential Palace in Cairo, August 22, 2012. REUTERS/Amr Abdallah Dalsh

Egypt's President Mohamed Mursi (R) speaks with IMF Managing Director Christine Lagarde during a meeting at the Presidential Palace in Cairo, August 22, 2012.

Credit: Reuters/Amr Abdallah Dalsh

ABIDJAN (Reuters) - Egypt's government must strongly endorse a $4.8 billion IMF loan agreement to its people as a step towards stabilizing an economy pummeled by a turbulent transition from autocratic rule, the head of the world lender said on Tuesday.

Egypt concluded an initial agreement with the International Monetary Fund in November but postponed concluding the deal last month due to political unrest triggered by President Mohamed Mursi's drive to fast-track a new constitution.

The political strife sparked a rush to sell Egyptian pounds, sending the currency to a record low against the U.S. dollar and draining foreign reserves. The IMF loan is crucial to plugging Egypt's balance of payments and budget deficits.

"The IMF needs to have the commitment of the political authorities that can actually endorse the program, own it, and propose it to the population as theirs," Christine Lagarde told Reuters during a visit to Ivory Coast.

Confronted by lethal street violence after Mursi awarded himself sweeping powers in November, the president postponed planned tax increases seen as part of a package of austerity measures needed to secure the IMF loan.

Egypt must now renegotiate some terms of the accord, and economists say the IMF board's approval is not a certainty - especially if there is any sign of government wavering over implementing what are likely to be unpopular conditions.

While any specific terms are yet to be made public, any IMF demands to cut spending or remove price subsidies will be hard to sell to an already fractious population ahead of parliamentary elections, more than two years after Hosni Mubarak was ousted in 2011 after 30 years in power.

Qatar threw Egypt an economic lifeline on Tuesday, announcing it had lent the country another $2 billion and given it an extra $500 million outright to help control the currency crisis - easing the immediate pressure on Mursi to negotiate the IMF deal.

Analysts, nonetheless, view completion of the deal as vital to give the Islamist government credibility with the markets.

The IMF's Middle East and Central Asia director, Masood Ahmed, travelled to Cairo and met Mursi on Monday.

"Based on what I've heard from my director of the Middle East, we are at a good tipping point," Lagarde said. "I'm pleased the mission will be resuming its activities on the ground shortly."

FISCAL CLIFF

Speaking during a tour of Africa, Lagarde also welcomed last week's "fiscal cliff" deal in the United States, saying the compromise permitted the IMF to maintain its growth outlook for the world's largest economy.

"We had a growth forecast of 2.1 percent for the United States in 2013. With what has been agreed, properly implemented of course, we'll be within the parameters we had set," she said.

However, she cited risks from pending negotiations to raise U.S. borrowing limits - its so-called "debt ceiling" - and sequestration. The White House and Congress reached the fiscal cliff deal by agreeing to a two-month delay to sequestration - automatic spending cuts that were set to take effect on January 1.

President Barack Obama and lawmakers now have until March 1 to reach agreement on $85 billion in spending reductions or cuts to military and domestic programs will kick in.

"We certainly hope that these matters will be resolved promptly and adequately in order to remove that Damocles sword that is hanging over the U.S. economy," she said.

Despite some lingering effects from the worst economic crisis since the Great Depression, most of the world's economies will expand in 2013, with global growth forecast at 3.6 percent.

"You have kind of low-speed, low-gear economies for the advanced economies that we see at 1.5 percent (growth). And we have 5.6 percent for emerging and low-income countries; sub-Saharan Africa should be at 5.25 percent," Lagarde said.

Lagarde said there was little risk of a downgrade to the IMF's 8 percent growth forecast for China, whose rising influence is strongly felt in Africa's mineral-rich economies.

The IMF chief said that while she was "cautiously optimistic" about the global outlook, serious risks remained.

"All of that is subject to no unraveling of the global economic situation," she said. "In other words ... appropriate decisions to continue to consolidate the euro zone and not facing the abyss of the debt ceiling in the United States."

(Reporting by Joe Bavier; Editing by Daniel Flynn and Alison Williams)

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