CAIRO: Egypt is studying an IMF offer of a bridging loan, a finance ministry source said yesterday, as Cairo tries to weather a currency and budget crisis deepened by political uncertainty and violence on the streets of its cities.
In Washington, the International Monetary Fund said Egypt needed bold and ambitious action to tackle its economic problems urgently and it could get temporary IMF funding while it negotiated a long-delayed full loan programme.
Egypt’s Islamist government faces daunting problems two years after the fall of Hosni Mubarak. Violent protests and feuding with the opposition have ravaged economic confidence, sending its currency down sharply - even though the central bank has spent almost two thirds of the dollar reserves left by Mubarak in trying to prop the Egyptian pound up.
President Mohammed Mursi has seemed reluctant to accept reform and austerity measures that would come with a full IMF deal before parliamentary elections. However, the budget deficit is also soaring and his options for foreign help are narrowing.
In Cairo, the finance ministry source said short-term funding under the IMF’s “Rapid Financing Instrument” programme was on the table. “We are studying the possibility of a temporary loan but no decision has been made yet,” he said.
On Sunday, Planning Minister Ashraf Al Araby said Egypt did not need stop-gap funding. “The cure for the budget deficit needs broad structural measures and the help we are requesting from the IMF is not quick fixes,” he said.
Al Araby did not say explicitly whether the IMF had offered such funding, which would come with fewer of the unpalatable conditions that would accompany a full deal. Egypt agreed a $4.8bn loan in principle with the IMF last November but requested a delay during violent unrest the following month.
Egypt also faces political chaos. Last month Mursi called parliamentary elections to start in April, only for a court to cancel his decree. Now no one knows when voting will begin.
In Washington, IMF spokeswoman Wafa Amr said the Rapid Financing Instrument was designed to provide rapid, but limited, assistance to member countries facing urgent balance of payments needs. “Use of the RFI could be an option if there is a need for interim financing while a strong medium-term policy programme is being put in place,” Amr said.
“Ultimately, this is a decision the authorities will have to take,” she said, adding: “The IMF remains fully committed to supporting Egypt at this critical time.” The stop-gap measure could amount to about $750 million. However, the sum is dwarfed by the budget deficit, which is growing rapidly as a slide in the Egyptian pound pushes up the cost of subsidising energy and food, much of which has to be imported using scarce dollars.
In its reform programme, the government targeted a deficit for this financial year of 189.7bn Egyptian pounds ($28bn) or 10.9 percent of annual economic output. Even this assumes economic reforms are made, and the deficit would hit 12.3 percent of GDP without such action, it forecast.
Tensions are rising on the streets of Egyptian cities, with protests and violence frequently erupting over a variety of grievances. Behind the immediate causes lies a general malaise as Egyptians struggle with falling living standards. Egyptians want Mursi’s government to be more honest with its people.
Inflation jumped to 8.2 percent in the year to February from 6.3 percent the previous month, with an even greater rise in food and drink prices particularly hurting the poor.
Reuters
