Egypt asks IMF for $3.2bn standby facility
2012-01-17 12:51:45
Egypt has asked the International Monetary Fund for a $3.2bn standby facility to help shore up the economy, which has been severely damaged by a year of political turmoil that has frightened off tourists and investors.
An IMF mission started talks in Cairo on Monday and Fayza Aboul Naga, minister for international co-operation, said an agreement was expected within weeks. “We have asked the IMF for $3.2bn in support,” she told reporters on Monday.
Egypt turned down an offer of a $3bn package in June, soon after reaching an initial accord with the fund, because the military council in power during the transition to elected rule said it did not want to leave a legacy of debt. The council also rejected $2.2bn of loans from the World Bank.
Recently, however, officials have signalled they were considering going back to the fund amid feeble economic growth, a gaping deficit and the depletion of half the country’s foreign currency reserves, which, analysts say, makes a devaluation of the Egyptian pound extremely likely and with it a surge in inflation.
“The authorities are still updating their economic programme and the visit will allow the fund to update our assessment and then we’ll be working together to take it from there,” said Gerry Rice, the fund’s director of external relations, speaking ahead of the arrival of the team.
Economic growth for the June fiscal year is forecast to be 1.3 per cent and the deficit could reach 10 per cent of gross domestic product, according to EFG-Hermes, the regional investment bank. The government has been relying on the domestic market to fund the deficit, but borrowing costs have soared above 15 per cent as bank appetite for government debt wanes.
The Egyptian request to the IMF comes as the country reaches the end of multi-stage elections for parliament, a crucial step in building a new political order after the toppling of Hosni Mubarak last year. The Freedom and Justice party, the political arm of the Muslim Brotherhood, has emerged as the largest group in parliament with about 46 per cent of the seats. The party said it had reached agreement on the appointment as Speaker of Saad al-Katatny, one of its senior officials. It said the Speaker’s two deputies would come from the Islamist Nour and from Wafd, a liberal party.
The military has promised to hand over control after a new president has been elected in June.
Samir Radwan, the former finance minister who negotiated last year’s aborted agreement with the IMF, said it was unlikely a deal would be finalised before there was more clarity on the country’s political future. He said that, although the standby facility was small in comparison to the country’s needs, reaching an agreement with the fund was key to obtaining credit from other sources.
“It should not be underestimated because it gives the Egyptian economy a certification that the right policies are being followed,” Mr Radwan said.
Despite promises by Arab and western officials after the revolution to support the Egyptian economy during the transition, very few of the pledges actually materialised. Qatar and Saudi Arabia each gave $500m in budget support and Mr Radwan said Gulf Co-operation Council countries ceased to be interested in lending to Egypt after it turned down the IMF.
The sense of an economy in crisis has deepened as the country approaches January 25, the first anniversary of the uprising that ousted Mr Mubarak.
In a bleak assessment of the Egyptian economy published in Masry al-Youm, a local daily, Hassan Heikal, the head of EFG-Hermes, warned of further hardships to come.
He said unemployment had risen to about 15 per cent [up from about 10 per cent] and that a dearth of new contracts in construction could put out of work a big slice of the 3m people who are employed in the industry. Mr Heikal also argued that prospects were poor for the tourism sector, which was likely to face “a much bigger crisis than in 2011” as a result of the redirection of charter packages to other destinations.