Egypt is seeking up to
$4bn from the International Monetary Fund to help plug the huge hole in
its public finances that opened up as a result of the economic disarray
following the overthrow of Hosni Mubarak, the former president ousted in
Egypt's Finance Minister
On his part, Egypt's Finance Minister Samir Radwan said that Egypt needed up to $12bn in budget support until the end of the next fiscal year in June 2012.
The deficit, he said, will be “anywhere between 9 and 10 per cent of gross domestic product” in the next fiscal year.
The resort to IMF support came as the military council ruling the country on Tuesday issued a warning that the economy was in a critical state. Mahmoud Nasr, the general in charge of financial affairs for the army, told
local media that foreign investment was down to “zero”, poverty levels were rising rapidly and foreign reserves were being depleted, down from $36bn to $28bn since January.
The warnings appeared intended to encourage a return to work and an end to the strikes and protests that have swept the country since the revolution.
Mr Radwan said the shortfall in public finances was the result of a sharp decline in tourism, exports and remittances from Egyptians abroad, coupled with rising demands for wage increases coming mainly from the state sector, which employs around 6m people.
“We are very much concerned by the rise in expectations [after the revolution],” said the minister. “This started timidly, but it is now far from timid. Sometimes the demands are justified and sometimes they are unrealistic, to use a polite term. This is cause for concern.”
Encouraged by the new atmosphere of freedom after the demise of the Mubarak regime, workers and civil servants in thousands of factories and government departments have been staging strikes and stoppages to demand better pay.
The finance minister said that meeting demands for pay increases cost the treasury an additional $12bn in February alone. He said the next budget would include new rules in the state sector such as a minimum and maximum salary.
He warned, however, that state revenue was shrinking. Egyptian industry is working at 50 per cent of capacity and tourism, a main economic driver employing 2m people, is losing up to $1bn every month.
“The loans being sought from the IMF in the range of $3bn-$4bn will help reassure investors about external and fiscal balances over the short term,” said Mohamed Abu Basha, economist with EFG-Hermes, the regional investment bank. “The government has been trying to finance the debt locally, so this will ease the liquidity squeeze in banks which is now being reflected in higher yields.”
Despite the urgency of Egypt’s financing needs, Mr Radwan was adamant his country would not accept any conditionality attached to the IMF loans. There would be, instead, a system of agreed “benchmarks”.
IMF conditions such as reductions in the country’s hefty food and fuel subsidies bill would be difficult to implement in the current atmosphere.
Forty per cent of Egyptians are poor, and any rises in the prices of basic goods would be seen as flying in the face of “social justice” – one of the rallying calls of the revolution.
“We have an Egyptian programme,” said Mr Radwan. “I am not accepting any conditionality – none whatsoever. We are not in the business of going to the Paris Club ... But the fact that we are dealing with the IMF will give a message to the whole world that we are running a transparent economic process.”
In addition to seeking loans from the IMF, Mr Radwan said his country was negotiating $2.2bn of soft credit from the World Bank and also hoped for support from oil-rich Arab countries of the Gulf.
The Supreme Military Council ruling in the interim period warned this week that foreign direct investment “had plummeted to zero” and that Egypt’s foreign reserves were being quickly depleted having fallen from $36bn in January to $28bn.
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