SCAF has not raised Egypt's foreign debt ceiling, so far: Official
Salma Hussein, Thursday 27 Oct 2011
The IMF may yet ink a $3 billion loan deal with Egypt despite disagreements between the country's military and finance and planning ministries over foreign borrowing, an insider tells Ahram Online


The current visit of an IMF delegation to Cairo could end up yielding a loan agreement, a finance ministry official has told Ahram Online on condition of anonymity.

The ministry hopes to conclude a US$3 billion loan agreement with the International Monetary Fund at the same favourable terms that were offered in June, despite a cap on foreign borrowing set by Egypt’s ruling military council.



There is evidence, however, that the Supreme Council of Armed Forces (SCAF), which has governed the country since former president Hosni Mubarak’s February ouster, might raise the cap.



On Sunday, the Minister of Planning and International Cooperation told Al-Ahram daily newspaper that the government is discussing a $35 billion package promised to Egypt by the G20 in March.



This amount is equivalent to Egypt's total foreign debt and represents 15.1 per cent of the country's GDP in March. Debt service amounts to 5.3 per cent of total current receipts (exports, service payments and transfers).



Planning minister Fayza Abul Naga is close to the SCAF and a long-standing opponent of any increase in these ratios.



The timing of her announcement, one day before the IMF visit, suggests that Abul Naga was raising the idea of alternatives to a loan from the controversial global body.



Abul Naga has previously stated that she prefers programme-designed loans, such as those from the World Bank and other multilateral development lenders, to policy-driven loans like those offered by the IMF.



But the Minister of Finance, Hazem El-Beblawi, has insisted that the government is suffering from a liquidity crunch which has to be covered by loans. He prefers what he describes as "low-cost" foreign borrowing over the "high-cost" domestic kind.



The finance minister is trying to meet SCAF members during the IMF visit in an attempt to find common ground, another source at the finance ministry told Ahram Online.



It is not yet clear if Beblawi will succeed in convincing the SCAF to change its stance on IMF loans.



The two week-visit of the IMF delegation which started on 24 October is an annual consultation which every member of the international institution is obliged to undertake.



The delegation reviews a country's economic policies and issues a staff report saying whether or not the country is on the right track, by IMF standards.



Called an Article IV consultation, this is followed by a staff report which evaluates government performance in terms of financial and monetary policies.



"This visit might end with the regular staff report or a programme, that's to say a loan agreement," said the source.



This contradicts the official statement of the finance ministry on 24 October, in which the first assistant to the minister said Egypt is not negotiating an IMF loan.



The IMF last visited Egypt in June and concluded its trip with the draft of a programme offering Egypt a $3 billion loan at a variable interest rate, starting at 1.5 per cent.



Egypt's military council, however, rejected the idea of borrowing from foreign sources.



"The SCAF preferred at the time to reduce budget deficit instead of borrowing," said the ministry source.



Samir Radwan, who served as Egypt's minister of finance until mid-July, pushed for expansionary policy in which the government would launch a wide-ranging plan of public investments in order to boost growth to 4 per cent. It also featured a social component allowing for increases in wages and pensions.



"The plan was to boost growth at the price of enduring a budget deficit of 11 per cent," recalls the source.



"But the SCAF was totally against the expansionary budget. No one wanted to raise wages at that time."



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