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IMF Chief Hails Egypt Austerity, Urges Approval of $12B Loan

  • Associated Press

Egyptians push to buy subsidized sugar from a government truck after a sugar shortage in retail stores across the country in Cairo, Egypt, October 14, 2016. Picture taken October 14, 2016.

Egyptians push to buy subsidized sugar from a government truck after a sugar shortage in retail stores across the country in Cairo, Egypt, October 14, 2016. Picture taken October 14, 2016.

The head of the International Monetary Fund praised Egypt's recent austerity measures on Tuesday and called on the world lender's Executive Board to finalize a $12 billion loan package to help rebuild the economy of the Arab world's most populous country.

Egypt's long-running financial woes have worsened in recent weeks amid a dispute with Saudi Arabia. The Saudis provided billions of dollars in aid after the military led by general-turned-president Abdel Fattal el-Sissi ousted Egypt's first freely elected civilian president, Mohamed Morsi, in 2013 but cut off fuel shipments last month over a dispute related to the Syrian conflict.

IMF chief Christine Lagarde praised Egypt's decision last week to float its currency and slash fuel subsidies, measures that have hiked the price of basic goods, but which she said would shore up its reserves, attract foreign investment and reduce its budget deficits.

"The Egyptian authorities have embarked on an ambitious reform program to put the country's economy on a sustainable path and achieve job-rich growth," she said.

She said she would recommend that the IMF Executive Board approve Egypt's request for $12 billion in loans when it meets this Friday.

Egypt is struggling to recover from years of turmoil following the 2011 uprising that toppled Hosni Mubarak. Some fear the sharp rise in prices caused by the austerity measures could ignite further unrest, but in the short term they seem to have restored some investor confidence.

Egypt's shares have risen for a fourth successive business day, with the benchmark EGX 30 index closing up 2.48 percent on Tuesday. The Egyptian pound traded at banks on Tuesday at around 17.75 to the dollar, nearly twice the dollar's official, pre-float exchange rate. The pound was trading at an all-time low of 18.50 to the dollar in the parallel black market prior to the float.

An Egyptian court meanwhile upheld a ruling by a lower tribunal that annulled President Sissi's decision to transfer two strategic Red Sea islands to Saudi Arabia, a move that could further escalate tensions between the two formerly close allies.

Saudi Arabia had agreed in April to provide Egypt with 700,000 tons of fuel a month for five years on easy repayment terms, but Egypt said Monday that the fuel shipments have been suspended indefinitely. Saudi Arabia has not commented on the matter.

Cairo angered the Saudis last month by voting for a Russian-backed U.N. Security Council resolution on Syria that was opposed by Riyadh. Saudi Arabia is a leading supporter of the rebels fighting to topple President Bashar Assad, while Egypt fears the rise of Islamic militants and has pushed for a negotiated solution that might keep him in power.

Egypt has also been working to shore up relations with Russia, which is a key ally of Assad. The halt of the fuel shipments led Egypt to sign a memorandum of understanding on imports from Iraq, which is closely allied with Saudi Arabia's main regional rival, Iran.

Egypt had announced the transfer of the two islands, Tiran and Sanafir, to Saudi Arabia during a high-profile visit to Cairo by King Salman in April.

Egypt said the islands had always been part of Saudi Arabia, but were placed under Cairo's protection from Israel in the 1950s. But the decision infuriated many Egyptians, who saw it as a sell-off to a wealthy patron, and the move ignited the largest protests since eSissi was elected in 2014.

A lower court has already ruled against the transfer of the islands, saying it was unconstitutional. The government has appealed that decision before three separate courts, one of which upheld the earlier decision on Tuesday. The other two have yet to rule on the case.

Both Saudi Arabia's apparent reprimand over the Syrian vote and the dispute over the islands have angered many Egyptians.

"These are like adolescents' policies!" said veteran political commentator and journalist Makram Mohamed Ahmed, who is known to be close to Sissi. "Saudis are dealing with the rest of the world as if they are the masters who must be obeyed."

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