CAIRO (Reuters) - Egypt’s economic situation is “worrisome” and it needs quick measures to restore economic activity, the planning minister told the state news agency MENA on Saturday as Egypt holds talks with the IMF on a $4.8 billion loan.
After two years of political turmoil, Egypt is struggling with an economic crisis and a high budget deficit. Foreign currency reserves are critically low, limiting its ability to import wheat and fuel.
An International Monetary Fund (IMF) delegation resumed long delayed talks with the government on Wednesday on a loan, which would throw Egypt a financial lifeline and potentially unlock a much larger amount in foreign aid and investment.
“The economic situation has become worrisome and quick measures are needed to restore (economic) activity,” Planning Minister Ashraf al-Araby said, according to MENA.
Araby described the IMF talks as “positive” and said he hoped Egypt would reach a deal in principle with the global lender within two weeks, MENA said. The IMF has made no comment on the negotiations and set no deadline for their conclusion.
Cairo reached a provisional agreement with the IMF last November but President Mohamed Mursi halted implementation of the economic conditions the following month amid political violence over the extent of his powers, suspending an unpopular increase and widening of the sales tax on goods and services.
Economic conditions have worsened significantly since November, widening the fiscal gap that needs to be plugged, while the Egyptian pound has depreciated.
Foreign reserves dipped further to $13.4 billion at end-March, the central bank said on Thursday, down from $13.5 billion a month earlier, equivalent to less than three months’ imports.
Egypt must convince the IMF it is serious about reforms aimed at boosting growth and curbing an unaffordable budget deficit. That implies tax hikes and politically risky cuts in state subsidies for fuel and food, including bread.
Just before the visit, the government announced an increase in the price of subsidized cooking gas. But it has postponed plans to ration subsidized fuel using smart cards until July 1, and some reports say that date may be pushed back further.
Prime Minister Hisham Kandil said on television on Friday night that Egypt needed to rationalize its energy consumption as a “national duty”, with or without an IMF loan.
He defended the decision last week to raise the price of gas canisters to 8 Egyptian pounds ($1.17) from 5, saying there was no real increase since households were used to buying gas on the open market at between 20 and 40 pounds a bottle.
In remarks seen as preparing the population for sacrifices to fulfill the IMF’s conditions, Kandil said the country was facing a great challenge and ordinary citizens were suffering the greatest burden.
The Egyptian pound has lost nearly one-10th of its value against the dollar on the official market this year and has fallen more sharply on the black market in the last few days due to dwindling supplies of the U.S. currency. ($1 = 6.8383 Egyptian pounds)
Reporting by Ulf Laessing and Paul Taylor; Editing by Kevin Liffey