Egypt refuses emergency IMF loan
Egypt has refused emergency credit from the IMF
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Egypt will not accept an emergency loan from the International Monetary Fund (IMF), Minister of Finance El-Morsi El-Sayed Hegazy announced during a press conference on Tuesday.
The global lender recently offered Egypt emergency funds through the Rapid Financing Instrument (RFI) facility to help it overcome its urgent balance of payments crisis, in parallel with negotiations over a $4.8 billion long-term stand-by-arrangement (SBA).
Egypt's cabinet spokesperson Alaa El-Hadidi told Reuters that any loan agreement would only be agreed within the framework of the country's economic programme.
Under the RFI programme Egypt could have accessed almost $700 million in emergency funds.
According to IMF regulations, emergency loans are limited to 50 per cent of the country's quota per year and 100 per cent of its quota in total.
Egypt's quota, which is determined by its relative position in the world economy, amounts to approximately $1.4 billion.
The RFI does not require a full-fledged economic plan but IMF officials have said that although Egypt can apply for an emergency short-term loan it must still make serious macroeconomic and fiscal reforms.
"This instrument [the short-term loan] is a gesture of goodwill from the IMF. It does not want to appear like it is abandoning Egypt, especially as the $4.8 billion facility is being delayed," former finance minister Hazem El-Beblawi told Ahram Online, Tuesday.
In late February, the Egyptian government unveiled a modified economic recovery programme that aimed to meet the IMF's pre-conditions for a proposed $4.8 billion loan, which included tax and budget reforms.
However, anonymous IMF sources have expressed scepticism about the effectiveness of the government's proposed reforms.
Both the IMF and Egypt agreed that the RFI would not be a substitute for Egypt's economic reform programme.
On Monday, IMF spokeswoman Wafa Amr told Reuters that the RFI could have been "an option if there was a need for interim financing while a strong medium-term policy programme is being put in place."
A team from the IMF was expected to visit Egypt in the next few days to resume negotiations over the $4.8 billion loan, however the cabinet's spokesperson announced Tuesday that "no timing had yet been set" for the visit.
Negotiations over the $4.8 billion loan have stirred controversy in Egypt, with both ultra-conservative Islamists and leftists criticising the government's position.
The main concern is that Egypt will implement austerity measures burdening low-income segments of the population in order to secure the loan.
The announcement of reforms in December 2012 was met with widespread discontent. President Morsi was obliged to reverse a decision to increase taxes and reduce government subsidies on butane gas and electricity.
Some observers said the amended economic recovery programme, which was announced in February, did not include enough fundamental macroeconomic reforms to help Egypt overcome its economic difficulties. This could be making the fund's executive board wary about Egypt's economic outlook, the observers added.
"It seems the fund is unconvinced about Egypt's economic reform programme. It is also wary of the unstable political situation in the country," Beblawi explained. "So they can't make a large loan, but they can still help."
Egypt's net foreign reserves fell by $105 million in February to a critical $13.508 billion, the Central Bank of Egypt (CBE) said.
The country's budget deficit increased by 35.8 per cent to LE119.8 billion ($17.7 billion) from July to January of the 2012/13 fiscal year compared to the same period the previous fiscal year.
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