Cairo reapplies for IMF debt-aid
To grant the loan, IMF needs the approval of the Egyptian Muslim Brotherhood's Freedom and Justice Party
The North African nation's risk of a balance-of-payments crisis and sharp currency devaluation rises as it awaits an agreement this month.
A series of blows to a final agreement with the IMF have raised fresh concerns about whether Egypt can sustain its fiscal situation much longer. Last month, the parliament rejected the government's new economic plan, the key to the country's request for the $3.2bn loan. Only six of 365 members of the assembly, which is dominated by the powerful Muslim Brotherhood, voted in favour of the plan.
The IMF has said repeatedly in recent weeks that it will back only a recovery plan that has "broad political support", meaning that to grant the loan it needs the approval of the Muslim Brotherhood's Freedom and Justice Party, the majority political party in parliament. A member of the party is one of three front runners in the upcoming presidential election.
Egypt's international reserves have fallen to a dangerously low level, about $15.1bn at the end of March, and the current account deficit widened to $8bn in the six months to the end of December.
Now, in the midst of a political uprising that shows no signs of waning, various parts of the Egyptian government are being forced to reassess decades-long spending patterns that have driven the country's budget deficit higher.
The ministry of petroleum is rescheduling overdue payments to international oil and gas exploration companies, as heavy energy subsidies take a toll on the budget. Meanwhile, the government is trying to revisit farming projects in the desert in an attempt to boost domestic food production and ease reliance on imports.
Even the ministry of tourism, now on a roadshow across Europe and parts of the Middle East, is spending $60 million of private-sector funds on promoting Egypt and its expensive Nile cruises. Tourism revenue, once a huge foreign currency earner accounting for over a tenth of GDP, last year declined 30.5 per cent to $8.7bn, from $12.5bn in 2010.
Reforms are key to boosting the nation's economic prospects but are also important for helping the interim government and political forces gain wider acceptance from foreign investors and potential donors as a messy transition is under way.
But economists say that without agreement on the IMF loan, the Egyptian pound will fall as much as 15 per cent over the next few months and the absence of an IMF loan would leave the nation with little external financing.
Saudi Arabia has been the only country since last year not to wait for the IMF deal to start disbursing loans. The kingdom has so far given Egypt $500m out of almost $4bn of aid pledged after last year's popular revolt that drove Hosni Mubarak from the presidency. But recent tensions between the two countries now threaten the flow of Saudi aid.
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