* 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 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.
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
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.