6 Min Read
CAIRO (Reuters) - Egypt has requested a $4.8 billion loan from the International Monetary Fund and hopes for a deal by the end of year, officials said during a visit on Wednesday by IMF chief Christine Lagarde to discuss helping the ailing economy.
Egypt said last week it would discuss a bigger-than-expected loan from the fund, whose support could help to stave off a balance of payments crisis and rebuild confidence among investors who fled during 18 months of political turmoil.
Egypt's military-appointed interim government had been negotiating a $3.2 billion package before it handed power to President Mohamed Mursi on June 30. The deal was not finalized.
"We have officially requested a $4.8 billion loan from the IMF," presidential spokesman Yasser Ali told Reuters as Lagarde met the president. An IMF official confirmed the request.
During earlier talks, army officials had voiced concerns about extending Egypt's foreign debt under their watch, while the IMF insisted any accord receive "broad political support".
Mursi's group, the Muslim Brotherhood, at the time declined to support any deal, saying the government had not shared enough information on how the money would be used. The Brotherhood at that point had nearly half the seats in parliament.
Lagarde's visit signals a fresh determination on both sides to seal a long-awaited accord after Mursi, who appointed his first government last month.
She said the IMF would look at fiscal, monetary and structural issues, promising that the IMF would be a partner in "an Egyptian journey" of economic reform.
Asked if the IMF wanted any loan accord to be approved by an elected parliament, Lagarde indicated that an elected president might alone satisfy the condition of broad political support.
"It's going to take a bit of time and we feel that we have perfectly competent authorities to negotiate with," she said at a joint news conference with Egyptian Prime Minister Hisham Kandil. She added that talks would continue on Thursday and an IMF team would make further visits to Egypt.
Kandil said he expected the IMF loan would be for five years with a grace period of 39 months and interest rate of 1.1 percent, but said details were still being discussed.
"God willing there will be an agreement on a map for work extending to November or the beginning of December during which the loan will be signed with the IMF," he said.
During 18 tumultuous months since the overthrow of autocratic leader Hosni Mubarak, successive Egyptian governments negotiated with the IMF to secure emergency funding. An army council took charge after Mubarak fell on February 11, 2011.
Foreign investors have largely avoided Egypt since the uprising, waiting for the political situation to stabilize and for the government to get its finances under control.
"The visit of Christine Lagarde to Egypt today is perhaps the clearest signal yet that the country is close to signing a deal with the IMF," Said Hirsh, an economist with Capital Economics, wrote in a note on Wednesday.
"If this materializes before the end of the year ... it would mark a turning point for Egypt's economy - and should pave the way for a period of decent growth over the next five years or so," he wrote.
Egypt's fiscal and balance of payments problems have worsened. The exodus of foreign investors have left local banks shouldering much of the lending to the state.
The government in the 12 months to end-June also borrowed nearly $12 billion, or about 4.5 percent of GDP, directly from the central bank, an unusual measure indicating it was running out of options to finance its budget deficit.
Since last year's popular uprising against Mubarak, Egypt also spent well over half its foreign reserves to support its currency, allowing the pound to weaken only by about 5 percent despite a sharp drop in tourism and foreign investment, two of Egypt's main sources of foreign exchange.
Egypt as of the end of July had reserves of $14.4 billion, of which only about half were in liquid cash or negotiable securities, economists say.
Many investors believe the currency is overvalued and have been reluctant to return partly because they fear a sharp currency devaluation could wipe out any returns.
An IMF deal would help Egypt to add credibility to economic reforms needed to restore investor confidence.
These include reducing subsidies on energy, which accounted for about 22 percent of all government spending in the fiscal year to June. The government is also expected to introduce a value-added tax in the next few months.
Based on government figures, the 2012/13 budget deficit will represent 7.9 percent of gross domestic product (GDP), down from 8.2 percent a year earlier. But most economists forecast lower GDP growth than the government's estimate of 4-4.5 percent.
Aid promised by foreign donors last year was largely absent until June, when Saudi Arabia transferred $1.5 billion as direct budget support, approved $430 million in project aid and pledged a $750 million credit line to import oil products.
Qatar also promised $2 billion in support this month.
Writing by Edmund Blair and Patrick Werr; Editing by Stephen Nisbet