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Agreement between Egypt and IMF to be renegotiated

Talks on a $4.8 IMF loan to restart as Egypt's main economic indicators for the financial year change

Marwa Hussein, Wednesday 23 Jan 2013
IMF
Egypt's President Mohamed Morsi (R) meets with IMF Managing Director Christine Lagarde at the Presidential Palace in Cairo (Photo: Reuters)
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The Egyptian government and the IMF will enter new negotiations over a Stand-By Agreement to lend Egypt some $4.8 billion, Ashraf Al-Arabi, minister of planning and international cooperation, told Al-Mal newspaper on the margins of a seminar. 

"It goes without saying. The negotiations between the government and the IMF took place two months ago; things have changed since then. It is just normal to restart negotiations at this point," an official source requesting anonymity told Ahram Online.
 
"The government is working on finalising the elaboration of an economic and financial programme, as well as on taking concrete reforms on the ground to prepare the return of the IMF mission and the signing of a new Stand-By Agreement," Al-Arabi told Al-Mal.
 
The minister said that the government will ask the IMF to prolong implementing the economic reform programme to the coming financial year (2013/2014).
 
He also revealed that the deal with the IMF stipulates minimum foreign reserves of $19 billion. Egypt's foreign reserves have fallen below this level since December 2011. Last month, they reached a low point of $15.01 billion.
 
"We will ask the IMF to reduce the minimum foreign reserves' limit fixed in the former Stand-By Agreement." 
 
Budget deficit levels seem to be another worry for the IMF. In the budget projected, the deficit was forecast to be $140.3 billion or 7.6 per cent of GDP. That figure do not seem realistic anymore, especially after the government halted tax increases and subsidies cuts aimed at reducing the deficit.
 
Last month, MENA news agency reported El-Arabi as saying that the budget deficit could reach almost LE200 billion by the end of the 2012/2013 fiscal year if the government does not implement financial and fiscal reforms. 
 
However, the deficit forecast has not been officially modified. 
 
"The IMF needs the deficit to be at a certain level to guarantee the sustainability of the financial situation," said the official source.
 
He added that the policies proposed to reach this target are also negotiated with the IMF for the international institution needs to verify their compliance with international agreements.
 
Al-Arabi's declarations contradict statements made by Christine Lagarde, head of the IMF, at a press conference in Washington last week according to which the fund is holding advanced talks with Egypt. 
 
Negotiations over the IMF loan were halted more than once during the last two years. Various given deadlines were also postponed.
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