CAIRO (AP) — A delegation from the International Monetary Fund is back in Egypt for critical negotiations over a $4.8 billion loan to help bolster the country’s ailing economy, a presidential spokesman said Tuesday.
It is not yet clear when the formal talks will begin, but the delegation is expected to be in Egypt for a couple of weeks to discuss an economic reform program that the fund’s officials have been seeking as a prerequisite before dispersing the loan.
President Mohammed Morsi was meeting Tuesday with his economic team, including the prime minister and the central bank governor, to discuss the talks with the fund, said Yasser Ali, a spokesman for the Egyptian president.
Egypt’s economy plummeted following last year’s uprising that toppled former President Hosni Mubarak — growth rates dropped in the wake of the revolt, foreign reserves fell by about $20 billion over the past 18 months, and tourism revenues and foreign investment shrank.
Government officials say the deficit for the last fiscal year that ended this summer reached nearly a whopping 11 percent of the GDP. According to the finance ministry, the deficit for the first three months of this fiscal year is already nearly 23 percent higher than the same time last year, indicating that government estimates aimed at reducing the deficit to 7.6 percent of the GDP this year may be unrealistic.
IMF officials said the talks over Egypt’s reform program would focus on measures to reduce the budget deficit without negatively impacting growth rates. But officials say such a program must address huge energy subsidies, which account for nearly half of state subsidies and which, in turn, consume over 27 percent of the state budget.
However, reducing subsidies is an explosive issue in a country where more than 40 percent of the country’s 83 million live on less than $2 dollars a day.
There has been criticism of Morsi’s government plans to borrow from the IMF though few other options have been suggested. Egyptian officials hope the fund loan would also raise investor confidence and open other avenues for financing from international donors.
In an interview in the daily al-Watan newspaper on Sunday, Finance Minister Mumtaz el-Said said the reform plan will restructure energy subsidies and introduce some changes to taxes, particularly on luxury goods. He didn’t elaborate.
Masood Ahmed, IMF’s director of the Middle East and Central Asia, recently said he expected the Egyptian program to address fiscal and external imbalances, while laying the foundation for growth and generating new jobs.
The IMF will look to see if the Egyptian proposal can reduce the deficit “in a way that does not adversely affect vulnerable households and poorer people” or negatively impact growth, Ahmed said.
A deal is expected before the end of the year.