CAIRO – Egypt’s government said Thursday that it invited an International Monetary Fund delegation to the country in March to resume talks on a $4.8 billion dollar loan desperately needed to boost the ailing economy, the official news agency said.
The Middle East News Agency, MENA, quoted Investment Minister Osama Saleh as saying the government will present the delegation with changes to its economic reform program. He didn’t offer any details on the changes.
Egypt’s ongoing political unrest has cast doubts over its ability to secure the loan, which is considered crucial to shoring up investor confidence and freeing up a wave of loans that Cairo has requested from other lenders.
The loan would cover part of a growing budget deficit. But it would also send an important signal to investors that Egypt is again a safe bet after two years of instability that began with the 2011 uprising that ousted longtime President Hosni Mubarak.
“Egypt was about to seal the deal with the fund in December, but political disturbances halted” talks, Saleh was quoted as saying by state-owned daily Al-Ahram.
Yet loan talks were set back after Egypt backtracked on tax hikes late last year.
Earlier this month, debt rating agency Fitch downgraded Egypt and said the country is not likely to get the IMF loan before parliamentary elections, set to begin in April and run in four stages through June.
Fitch said there could be political pushback against austerity measures until the end of the year and others have questioned whether President Mohammed Morsi would have the political will to implement unpopular economic reforms that could hurt his Muslim Brotherhood group at the polls.
Fitch warned that a prolonged delay in implementing an IMF austerity program could lead to a strain on external finances, an abrupt depletion of reserves and a disorderly devaluation of the currency. Another concern is Egypt’s widening budget deficit.
Over the past months, Egypt’s foreign currency reserves sharply declined. The central bank said the reserves fell to $13.61 billion in January from $15.01 billion a month earlier, a $1.4 billion decline that provided stark new evidence of a dangerous deterioration in the economy. Foreign reserves stood at $36 billion before Egypt’s uprising began in January 2011.
Morsi has resisted implementing austerity measures while struggling to contain spreading calls for civil disobedience and strikes across the country.
The opposition political group The National Salvation Front has declared it will boycott the upcoming parliamentary elections in a sign that the political turmoil will be prolonged. The group is demanding that Morsi provide assurances on amending the newly adopted constitution, form a national unity government and guarantee free and fair elections.
Recently, the government said that it will not touch basic commodities and subsidies — on which millions of poor Egyptians live — but will raise sales tax on cigarettes, liquor, cement, and steel. Cutting energy subsidies is also at the top of the agenda.
The Islamist government has been also searching for alternative ways to increase revenues.
On Wednesday, it approved a draft law that allows the state to issue Islamic bonds and sent it to the transitional parliament. The government believes that it can raise some $10 billion dollars from the bonds, which according to Islamic principles do not pay interest.
This week, the government sent a delegation to Iran in another sign of warming ties after decades of strain. Egypt wants to lure Iranians to shore up its ailing tourism industry, a key earner of foreign revenue.