Egypt dismisses offers of stop-gap IMF funding

Reuters, Sunday 10 Mar 2013

Suggestions that IMF could offer bridging financing to Egypt have been rejected by the government, said planning and international cooperation minister

Lagarde and Morsi
International Monetary Fund Chief Christine Lagarde, meets with Egyptian President Mohammed Morsi (Photo: AP)

Egypt on Sunday rejected any suggestion of stop-gap IMF funding to help it through a political and economic crisis, saying only broad structural measures as part of a package agreed with the Fund can tackle the country's soaring budget deficit.

With Islamist President Mohamed Mursi struggling to contain violent protests, new figures released on Sunday showed a jump in inflation, which will hurt the poor hardest and is likely to stir yet more social unrest.

Cairo wants to reopen talks with the International Monetary Fund on a $4.8 billion loan which it put on hold during rioting last December. The IMF has yet to respond publicly to the invitation and analysts say it seems reluctant to negotiate on a full deal during the current political chaos.

Planning Minister Ashraf al-Araby said only a comprehensive programme would do. "The cure for the budget deficit needs broad structural measures and the help we are requesting from the IMF is not quick fixes," he told a news conference.

Analysts have said the IMF might offer short-term financing which would be modest in size but without many of the conditions demanding painful reforms that would come with a full programme.

"It is not suggested that we obtain a bridging loan," al-Araby said. "This is offered by the IMF in its negotiations with many countries. In our case, we do not need bridging loans."

Al-Araby did not say explicitly whether the IMF had offered Egypt such short term funding, which analysts said could help the government to muddle through until after elections.

Last month President Mohamed Mursi called the elections to be held between April and June, but a court later cancelled his decree, throwing the electoral process into limbo. Analysts say the IMF may be reluctant to offer even short-term funding while no one knows when the elections will be held.

Cairo's problems are daunting. Foreign currency reserves have fallen to little more than a third of their levels before the 2011 revolution, forcing the central bank to ration dollars.

This is crippling many smaller and medium-sized firms, which often have to turn to the black market because banks tell them to wait for months to get currency at the official rate.

On top of that the government's budget deficit is climbing to unaffordable levels and the Egyptian pound is sliding.

Egypt's statistics agency CAPMAS highlighted on Sunday an unwelcome consequence of the weak currency: a leap in inflation. Illustrating the squeeze on living standards since the fall of Hosni Mubarak, prices in towns and cities rose 8.2 percent in the year to February, sharply higher than the 6.3 percent inflation rate the previous month.

Economists blamed the turmoil on Egypt's streets and in politics which has undermined economic confidence and pushed the pound lower, increasing the cost of imported food.


On Saturday alone, protesters torched buildings and two people died in Cairo in pitched battles with police, a force widely hated for its brutality during the Mubarak era and still unreformed two years after his overthrow.

EFG-Hermes economist Mohamed Abu Basha said inflation may accelerate yet further. "It could rise more given the ongoing unrest and huge losses in the value of the Egyptian pound of around 10 percent ... since the start of the year," he told Reuters.

February's month-on-month inflation rate also leapt to 2.5 percent from 1.7 the previous month, the CAPMAS statistics agency reported.

Prices of food and drink - which swallow up much of poor Egyptians' incomes - rose 9.3 percent year-on-year last month,

Even better off Egyptians earning around 1,000 pounds ($150) a month are feeling the pinch. Government employee Mahmoud Hosni said he had noticed how the cost of sugar, food oils and transport was rising.

"Most of the basic goods have gone up," Hosni, 31, said as he queued to buy bean and falafel flatbread sandwiches, a typical Egyptian lunch. "If you earn 1,000 pounds, for example, and then something goes up 10 pounds and your salary hasn't changed, of course it's going to affect you."

Saturday's violence had its immediate roots in a soccer riot two years ago when more than 70 fans died. Supporters of Cairo team Al-Ahly went on the rampage after a court jailed two policemen but acquitted seven others whom the fans blame for the deaths at an away match in Port Said.

Other unrest in recent months has erupted over grievances ranging from Mursi's decree last year temporarily awarding himself sweeping powers to attempts at clearing protesters from Cairo's Tahrir Square, centre of the 2011 popular uprising.

But underlying all this is the acute stress many Egyptians are under as they try to make ends meet. "A lot of people are having difficulties, problems are increasing. Traders are getting scared," said a 50-year-old employee of a religious travel firm who gave her name only as Sabah.

Many Egyptians blame Mursi for their difficulties, but government employee Hosni had no hankering for the Mubarak era. "This is a natural thing. After a revolution there has to be a stage where things are unbalanced like this," he said.



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