IMF team arrive in Cairo for talks on $4.8 bln loan

Wed Apr 3, 2013 5:25am EDT

Related Topics

* IMF loan seen talks been dragging for years

* Shortages exacerbating political tensions

* Cuts in subsidies of staples deeply unpopular

By Ulf Laessing

CAIRO, April 3 (Reuters) - A delegation from the International Monetary Fund (IMF) has arrived in Egypt for talks on a $4.8 billion loan to ease an economic crisis in the most populous Arab country, state news agency MENA said on Wednesday.

After two years of political upheaval, foreign currency reserves have fallen to critically low levels, threatening Egypt's ability to buy wheat, of which it is the world's biggest importer, and fuel.

President Mohamed Mursi's government initialled a deal with the IMF last November but postponed ratification in December in the face of unrest triggered by a political row over the extent of his powers.

The IMF delegation arrived on Tuesday for a visit lasting several days, MENA said.

In the talks, Cairo must convince the IMF that it is serious about reforms aimed at boosting growth and curbing an unaffordable budget deficit. That implies tax hikes and politically risky cuts in the generous system of state subsidies for fuel and bread.

An IMF deal has eluded Egypt for years, despite on-off talks by first the army-led government and now Mursi's. Economists say the IMF appears to question whether Egypt has the capacity to enact reforms, doubts that the country's political turmoil has done nothing to ease.

Just before the visit, the government announced an increase in the price of subsidised cooking gas. But it has postponed plans to ration subsidised fuel using smart cards until July 1 and some reports say that date may be pushed back.

The Egyptian pound has lost nine percent against the dollar this year and is trading even lower on the black market, driving up inflation. Shortages meanwhile threaten to exacerbate tension in the street, where Mursi's opponents have been airing political grievances in protests that frequently turn violent.

POUND TUMBLES

The government hopes to have a loan agreement finalised by the IMF's Spring meetings, held from April 16 to 21, Finance Minister Al-Mursi Al-Sayed Hegazy said on Monday. IMF officials have not given a timeline.

Seeking to protect the Egyptian pound, the central bank has lifted interest rates, increasing the cost of borrowing needed to finance a state deficit that will hit 12.3 percent of GDP without reforms.

A medium-term economic plan submitted to the IMF envisages cutting the deficit to 9.5 percent in the 2013-2014 fiscal year beginning in July.

The financial crunch has forced the government to cut back on fuel imports, leading to shortages that have caused transport disruptions and power cuts. To ease shortages, Cairo has said it aims to import oil from Iraq and neighbouring Libya while paying off some of the money it owes to foreign energy firms.

Egypt has also cut back on wheat imports, running down grain reserves in the hope that a bumper harvest will be enough to feed its 84 million population.

Without a deal, Cairo could still limp along for several more months, but it would not be comfortable.

FILED UNDER: