IMF loan to Egypt delayed amid political turmoil

December 12, 2012 - 1:17:18 am

CAIRO: A vital $4.8bn International Monetary Fund loan to Egypt will be delayed until next month, its finance minister said yesterday, intensifying the political crisis gripping the Arab world’s most populous nation.

As rival factions gathered in Cairo for a new round of demonstrations, Finance Minister Mumtaz Al Said said the delay in the loan agreement was intended to allow time to explain a heavily criticised package of economic austerity measures to the Egyptian people.

The announcement came after President Mohammed Mursi on Monday backed down on planned tax increases, seen as key for the loan to go ahead. Opposition groups had greeted the tax package, which included duties on alcoholic drinks, cigarettes and a range of goods and services, with furious criticism.

“Of course the delay will have some economic impact, but we are discussing necessary measures (to address that) during the coming period,” the minister told Reuters, adding: “I am optimistic ... everything will be well, God willing.”

Prime Minister Hisham Kandil said Egypt had requested that the loan be delayed by a month. “The challenges are economic not political and must be dealt with aside from politics,” he told a news conference.

Kandil said the reforms would not hurt the poor. In a bid to rebuild consensus, he said there would be a national dialogue about the economic programme next week.

On the streets of the capital, tensions ran high after nine people were hurt when gunmen fired at protesters camping in Tahrir Square, according to witnesses and Egyptian media.

The opposition has called for a major demonstration it hopes will force Mursi to postpone a referendum on a new constitution.

Thousands of flag-waving Islamist Mursi supporters, who want the vote to go ahead as planned on Saturday, assembled at a nearby mosque, setting the stage for further street confrontations in a crisis that has divided the nation of 83 million.

The upheaval following the fall of Hosni Mubarak last year is causing concern in the West, in particular the United States, which has given Cairo billions of dollars in military and other aid since Egypt made peace with Israel in 1979.

The turmoil has also placed a big strain on the economy, sending foreign currency reserves down to about $15bn, less than half what they were before the revolt two years ago as the government has sought to defend the pound.

“Given the current policy environment, it’s hardly a surprise that there’s been a delay, but it is imperative that the delay is brief,” said Simon Williams, HSBC economist in Dubai. “Egypt urgently needs that IMF accord, both for the funding it brings and the policy anchor it affords.”

The IMF deal had been seen as giving a seal of approval to investors and donors about the government’s economic plans, vital for drawing more cash into the economy to ease a crushing budget deficit and stave off a balance of payments crisis.

Reuters

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