CORRECTED-UPDATE 2-IMF in loan talks with Tunisia - senior official

Sat Jan 19, 2013 11:33am EST

(Corrects to clarify process of IMF talks, paragraphs 1 and 7)

* IMF reveals it is in loan talks with Tunisia

* Egypt to conclude IMF loan deal after technical work

* IMF director says Middle East faces 'difficult year'

By Lesley Wroughton

WASHINGTON, Jan 18 (Reuters) - The International Monetary Fund has begun negotiations with Tunisia on a loan program and hopes to return to Egypt for talks on a $4.8 billion funding deal, but only after the government updates its budget measures, a top IMF official said on Friday.

Masood Ahmed, IMF director for the Middle East and North Africa, told reporters he hoped to report progress in the talks with Tunisia by early February.

Tunisia, whose uprising two years ago sparked political changes across North Africa, said in November it was seeking a $2.5 billion loan from the IMF. Ahmed said current discussions are trying to establish the government's funding needs.

Tunisia's newly elected Islamist-led government has sought to revive the economy in the face of a decline in trade with the crisis-hit euro zone and domestic political disputes over the future of the North African Arab state.

In Egypt, the government is keen to move forward to finalize its IMF loan deal, Ahmed said, after an agreement was postponed in November due to political unrest triggered by President Mohamed Mursi's drive to fast-track a new constitution.

Confront by street protests, Mursi postponed planned tax increases seen as part of a package of austerity measures needed to secure the IMF loan.

Ahmed said the government told the IMF during a visit in early January it was ready to move forward. An IMF mission will visit Cairo after the government updates economic measures to reflect changes in the economy since November, he said.

"Part of it is to make sure that the measures ... will deliver the outcomes and are politically feasible," he said. "The work we've done provides a very good basis now for us to finalize our discussions."

Ahmed said the IMF needed to be satisfied that Egypt would be able to implement the program before it gave a final approval. IMF demands for spending cuts and the removal of price subsidies will be a hard sell to an already fractious population ahead of parliament elections later this year.

Meanwhile, the Egyptian pound hit a new record low against the U.S. dollar this week after the authorities introduced a new system of foreign currency auctions to curb a decline in foreign reserves.

Ahmed said the IMF supported the government's goal of preserving and strengthening international reserves and to have a well-functioning market for foreign exchange.

"It is part of that process that they've put in place these auctions and in a way the prices are reflecting supply and demand," he said.

CHALLENGING YEAR

Ahmed said 2013 was likely to be another "difficult year" for the Middle East and North Africa given a recession in Europe and ongoing political transitions and conflict in the region. Elections in Egypt, Jordan and Tunisia this year also pose risks.

Ahmed said the pace of growth in the Middle East was likely to increase but not enough to make a reduce high unemployment levels.

"Balancing the rising expectations and growing impatience of populations who want to see results at a time when growth rates are likely to remain low will be a big challenge for many countries," Ahmed said.

Ahmed said rising fiscal and balance of payment pressures, especially in countries forced to boost spending to deal with a wave of political revolts, will make for tough choices by governments over the next 12 months. (Reporting by Lesley Wroughton; Editing by Jackie Frank and Cynthia Osterman)

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