Muslim Brotherhood refuses IMF loan terms for Egypt
Egypt's hopes of securing a US$3.2 billion (Dh11.7bn) loan from the IMF have taken a further knock after a front-runner in next month's presidential election has said he would not support the bid unless the terms were changed.
The government has been in talks for several weeks with the IMF about the funding, which is needed to stop the country slipping into a fiscal crisis. But the comments by Khairat Al Shater, who is in the running for the Muslim Brotherhood's Freedom and Justice Party, signal the struggle that negotiators face to win political support for the funding bid.
The IMF says the cash is dependent on broad political backing for the plan. "We are not opposed in principle. We are opposed to the timing and the method of implementation," Mr Al Shater was quoted by Reuters as saying. "We told [the government] you have two choices. Either postpone this issue of borrowing and come up with any other way of dealing with it without our approval, or speed up the formation of a government," Mr Al Shater told Reuters.
A technical team from the IMF is visiting Cairo to discuss a plan with Egyptian officials for taking the loan and making reforms to the economy in return. The delegation has been in talks with a range of parties. The Brotherhood is one of the most important political groupings in the country, having won nearly half the seats in the new parliament. Mr Al Shater is one of the early favourites in the presidential election, which is expected to take place over two rounds in May and June.
The winning candidate will inherit a country still in recovery mode after a period of hiatus following the removal of Hosni Mubarak as president in February last year. More than $20bn in foreign reserves have been exhausted by the interim government to prop up the ailing currency. Reserves fell a further $600 million last month to $15.2bn.
"The reserve cover is pretty low and if the IMF funding isn't agreed there is a risk of a disorderly devaluation of the [Egyptian] pound," said Liz Martins, the senior regional economist at HSBC. "Egyptian banks are doing a pretty good job of financing the budget shortfall but they cannot do this forever. Liquidity in the system is finite, and deposit growth is negative in real terms."
The cash is also important to help to restore the faith of foreign investors in Egypt's economy. Many foreigners have remained nervous about investing until signs of stability return.
To support its loan bid, the interim government has submitted to the IMF an economic programme, which is believed to lay out reforms the government would make to support the funding. It is also expected to detail how the country intends to obtain aid from other donors to raise the estimated $11bn of external funding it needs in the next two years.
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