Published October 30, 2012
CAIRO – 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. 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 granting the loan.
The prospective loan has set off debate over what remains a largely unknown government reform program.
President Mohammed Morsi met Tuesday with his economic team, including the prime minister and the central bank governor, to discuss talks with the IMF, 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 were cut nearly in half over the past 18 months, as tourism revenues and foreign investment shrank.
Government officials say the deficit for the last fiscal year that ended this summer reached nearly 11 percent of the GDP, at $22 billion. 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 the government's plan to borrow from the IMF, though few other options have been suggested. Egyptian officials hope the loan would raise investor confidence and open other avenues for financing from international donors. A deal is expected before the end of the year.
Initial talks over the loan stalled earlier this year because of differences between the then-ruling military and Egypt's political leaders. The Islamist-led parliament opposed a deal, saying that a transitional government should not sign an agreement worth with billions of dollars because it would place a burden on the future government.
Salma Hussein, an economics writer, said with Egypt's parliament dissolved, there is no way for the public or their representatives to follow the negotiations or vote on the loan.
She said the government has yet to publish or announce its economic program to the public.
"We started the other way around. We said we will borrow, and then are devising a program to deal with our problems," she said. "No states with large economies and huge debts would go down the road of foreign borrowing."
Earlier this month, Morsi promised to overhaul the decades-old subsidies program and reiterated his pledge to abide by Islamic banking laws and not agree to pay interest on the loan, telling a cheering crowd that "we'll go hungry before we eat off interest."
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.
Also Tuesday, an Egypt administrative court declared Centamin's concession agreement to extract gold from Egypt's Sukari mine void. The case is the latest incident of court rulings challenging contracts signed during the time of former President Hosni Mubarak. The rulings could fuel concerns among foreign investors.
The court said the agreement's terms were unfavorable to the government, which got $19 million of the $875 million worth of gold extracted and sold.
Centamin said in a statement that the court has no jurisdiction over the concession, which it said remains in force. It said it had received no written judgment.