News / Middle East

    Election Limbo Keeps Egypt's IMF Loan on Ice

    Riot police try to stop clashes and ask protesters, opposing Egyptian President Mohamed Mursi, to back away along Qasr Al Nil bridge, which leads to Tahrir Square in Cairo, Mar. 7, 2013.
    Riot police try to stop clashes and ask protesters, opposing Egyptian President Mohamed Mursi, to back away along Qasr Al Nil bridge, which leads to Tahrir Square in Cairo, Mar. 7, 2013.
    Reuters
    Once parliamentary elections are out of the way, Egypt stands a chance of securing an International Monetary Fund loan to help address its currency and budget crisis; the problem is that no one knows when that will be.

    With face-to-face contact between Egypt and the IMF re-established this week after a two-month gap, both sides are pushing for urgent action, but with strikingly different emphases.

    Egyptian men sell bread as they balance the trays on their heads near Al Hussein mosque in Old Cairo, Mar. 17, 2013.Egyptian men sell bread as they balance the trays on their heads near Al Hussein mosque in Old Cairo, Mar. 17, 2013.
    x
    Egyptian men sell bread as they balance the trays on their heads near Al Hussein mosque in Old Cairo, Mar. 17, 2013.
    Egyptian men sell bread as they balance the trays on their heads near Al Hussein mosque in Old Cairo, Mar. 17, 2013.
    President Mohamed Mursi's government wants a full $4.8 billion loan, as agreed in principle last November, but based on a gentler reform programme than originally planned, "in light of preserving growth rates, employment and protecting the poor."

    By contrast, the IMF's top official for the region, Masood Ahmed, spoke only of "possible financial support" after he met the government and central bank in Cairo on Sunday.

    Also, the IMF has vigorous reform in mind to tackle problems such as energy subsidies, which are draining huge sums from the state budget."Egypt needs bold and ambitious policy actions to address its economic and financial challenges without further delay," spokeswoman Wafr Amr said last week.

    Such "policy actions," most likely tax rises and subsidy cuts that will send fuel costs soaring, would not go down well at any time with a population suffering from a steady economic slide since the 2011 revolution, let alone before an election.

    "The IMF will want to see measures to rein in the budget deficit in order to agree to a package which the government may be loath to implement prior to elections. An imminent agreement seems unlikely," said Giyas Gokkent, Chief Economist at National Bank of Abu Dhabi.

    Cairo already had to request a delay in the IMF loan in December during serious street violence, and trouble has regularly erupted since then over a variety of grievances.

    In such a volatile atmosphere, matters would be helped if everyone knew when a new lower house of parliament would be installed. Mursi announced last month that the elections would start on April 22, only for a court to cancel his decree on a procedural technicality.

    So, at this crucial stage of a turbulent transition to democracy since the fall of Hosni Mubarak, Egypt has had no lower house for nine months, and nobody, from Mursi down, can say when it will. "Egypt's unstable politics is likely to be the primary concern for IMF officials," said Oliver Coleman, analyst at risk consultancy Maplecroft.

    "The judiciary has shown itself more than willing to rescind the decrees of the Mursi government, and a controversial economic reform package may meet the same fate without the mandate of a universally recognised parliament in place to back it up," he added.

    Egypt's mounting deficit

    Egypt's needs are pressing. In its plan drawn up for the IMF, the government forecast the budget deficit would hit 12.3% of the country's entire annual economic output in the year to June unless it made urgent reforms.

    Far wealthier and more stable Portugal, which restored democracy almost 40 years ago, had to take a bailout from the IMF and European Union in 2011 after running a deficit that peaked below 10% of gross domestic product.

    Egypt's pound is also steadily losing value, even though the central bank, which spent roughly two thirds of the Mubarak era foreign currency reserves trying to prop it up, is drastically rationing the supply of dollars.

    This is crippling many small and medium-sized businesses, which are forced to turn to the black market, where unfavourable exchange rates can wipe out their profits.

    On the streets, motorists queue for scarce supplies of diesel and other cheaper fuel, and anger is growing over inflation, which leapt to an annual 8.2% in February from 6.3% the previous month, eating into the living standards of people struggling to make ends meet.

    This is creating a sense of helplessness among ordinary Egyptians about the reforms likely to come with an IMF loan.

    "Now everything is expensive, and if they remove the subsidies, what will we do?" said Mohamed Shabaan, a 37-year-old driver. "We don't want [the loan], but at the same time I don't think that the country can function without it."

    Shabaan, who makes a living chauffeuring visitors and expatriates around Cairo, has much to lose. According to the projections, the most commonly used 90 octane gasoline would leap to 5.71 Egyptian pounds ($0.85) a litre from 1.75 if subsidies go, while diesel would go up to 5.21 pounds from 1.10.

    The government has promised limited amounts of subsidised fuel would remain available to some drivers under a smart card system due to start in July, but Shabaan's larger engined car would be excluded from the scheme.

    In Tuesday, the government said it also planned to start rationing subsidised bread, a measure that would affect poor Egyptians particularly badly.
            `
    No election link

    The Islamist-led administration, which is at loggerheads with the liberal and leftist opposition about the very character of Egypt, denies the stalled elections will determine the timing on an IMF loan.

    "All the discussion was about financial support or the loan that Egypt aims to obtain from the Fund," government spokesman Alaa El-Hadidi said after Sunday's visit by the IMF official, the first since January. "There is no link between the loan and parliamentary elections."

    But officials of the IMF and its biggest shareholder, the United States, regularly stress that the reforms need to win backing, or at least acceptance across Egyptian politics.

    Consensus seems a remote possibility. Many opposition parties had already decided to boycott the elections in a series of disputes including over the electoral law, a new constitution written by an Islamist-dominated assembly and a Mursi decree last year when he temporarily gave himself sweeping powers.

    Indicating the divide in Egyptian life, Hadidi said the economic programme had been sent to the political parties "some of whom disagree with anything the government presents."

    Hadidi spoke of technical-level talks lasting between one and three weeks, but no date has yet been announced for when they would start. Ahmed, who heads the IMF's Middle East and Central Asia Department, gave little away after he met Prime Minister Hisham Kandil and central bank Governor Hisham Ramez.

    "We agreed that our discussions would continue diligently over the coming weeks with the aim of reaching agreement on possible financial support from the IMF," said Ahmed.

    William Jackson of Capital Economics in London noted the IMF seemed to believe a deal might take some time."This probably reflects the difficulties of passing any reforms with the political situation so volatile and without elections," he said.

    The IMF has raised the possibility of a bridging loan to tide Egypt over, an idea rejected by Cairo as it pushes for a full loan in return for a full reform programme.

    Will Cairo swallow its pride?

    But Cairo might have to swallow its pride as the $36 billion in currency reserves that Mubarak left behind had shrunk to just $13.5 billion at the end of last month.

    "If there's a sudden deterioration in sentiment and investors wish to take their money out of Egypt, then the pound will come under more pressure," said Jackson. "In this situation, the authorities may agree to a bridging loan from the Fund to prevent a sharp fall in the pound."

    Investors have already been shaken by a series of high-profile legal actions against prominent business figures, including travel bans and freezing of their assets, over issues ranging from tax demands to insider dealing allegations.

    This will make it tough to implement unpalatable polices. "No minister or senior government official wants to bear the brunt of taking radical decisions at a stage when mass demonstrations, imprisonment and travel bans are inches away from everyone," said Hany Genena, head of research at Pharos Securities Brokerage.

    In the end, the fate of Egypt's reforms and the IMF loan is likely to be sealed on the streets.

    Safwat Hassan, a 44-year-old marble trader, said Egyptians would resist sharp price rises resulting from subsidy reform. "The people do not accept this and there will be anxiety and demonstrations," he said. "This issue will not pass lightly."

    You May Like

    Ugandan Opposition Candidate: Only Intimidation, Vote Buying Can Prevent Victory

    Kizza Besigye says he has been drawing large crowds and claims he has widespred support ahead of Feb. 18 vote

    HRW: Both Sides in Ukraine Conflict Targeted, Used Schools

    Rights group documents how both sides in Ukraine conflict carried out attacks on schools and used them for military purposes

    Sanctions Just Got Real for Over 54,000 North Koreans

    Shuttering of Kaesong complex ends virtually any hope of peaceful settlement to long-standing tensions on Korean peninsula in near future

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Russia's Car Sales Shrink Overall, But Luxury and Economy Models See Growthi
    X
    February 10, 2016 5:54 AM
    Car sales in Russia dropped by more than a third in 2015 because of the country's economic woes. But, at the extreme ends of the car market, luxury vehicles and some economy brands are actually experiencing growth. VOA's Daniel Schearf reports from Moscow.
    Video

    Video Russia's Car Sales Shrink Overall, But Luxury and Economy Models See Growth

    Car sales in Russia dropped by more than a third in 2015 because of the country's economic woes. But, at the extreme ends of the car market, luxury vehicles and some economy brands are actually experiencing growth. VOA's Daniel Schearf reports from Moscow.
    Video

    Video Civil Rights Pioneer Remembers Struggle for Voting Rights

    February is Black History Month in the United States. The annual, month-long national observance pays tribute to important people and events that shaped the history of African Americans. VOA's Chris Simkins reports how one man fought against discrimination to help millions of blacks obtain the right to vote
    Video

    Video Jordanian Theater Group Stages Anti-Terrorism Message

    The lure of the self-styled “Islamic State” has many parents worried about their children who may be susceptible to the organization’s online propaganda. Dozens of Muslim communities in the Middle East are fighting back -- giving young adults alternatives to violence. One group in Jordan is using dramatic expression a send a family message. Mideast Broadcasting Network correspondent Haider Al Abdali shared this report with VOA. It’s narrated by Bronwyn Benito
    Video

    Video Migrant Crisis Fuels Debate Over Britain’s Future in EU

    The migrant crisis in Europe is fueling the debate in Britain ahead of a referendum on staying in the European Union that may be held this year. Prime Minister David Cameron warns that leaving the EU could lead to thousands more migrants arriving in the country. Meanwhile, tension is rising in Calais, France, where thousands of migrants are living in squalid camps. VOA's Henry Ridgwell reports.
    Video

    Video Valentine's Day Stinks for Lebanese Clowns

    This weekend, on Valentine's Day in Lebanon, love is not the only thing in the air. More than half a year after the country's trash crisis began, the stink of uncollected garbage remains on the streets. Step forward "Clown Me In," a group of clowns who use their skills for activism. Before the most romantic day of the year the clowns have released their unusual take on love in Lebanon -- in a bid to keep the pressure up and get the trash off the streets. John Owens reports from Beirut.
    Video

    Video Families Flee Aleppo for Kurdish Regions in Syria

    Not all who flee the fighting in Aleppo are trying to cross the border into Turkey. A VOA reporter caught up with several families heading for Kurdish-held areas of northern Syria.
    Video

    Video Rocky Year Ahead for Nigeria Amid Oil Price Crash

    The global fall in the price of oil has rattled the economies of many petroleum exporters, and Africa’s oil king Nigeria is no exception. As Chris Stein reports from Lagos, analysts are predicting a rough year ahead for the continent’s top producer of crude.
    Video

    Video 'No Means No' Program Targets Sexual Violence in Kenya

    The organizers of an initiative to reduce and stop rape in the informal settlements around Kenya's capital say their program is having marked success. Girls are taking self-defense classes while the boys are learning how to protect the girls and respect them. Lenny Ruvaga reports from Nairobi.
    Video

    Video Chocolate Lovers Get a Sweet History Lesson

    Observed in many countries around the world, Valentine’s Day is sometimes celebrated with chocolate festivals. But at a festival near Washington, the visitors experience a bit more than a sugar rush. They go on a sweet journey through history. VOA’s June Soh takes us to the festival.
    Video

    Video 'Smart' Bandages Could Heal Wounds More Quickly

    Simple bandages are usually seen as the first line of attack in healing small to moderate wounds and burns. But scientists say new synthetic materials with embedded microsensors could turn bandages into a much more valuable tool for emergency physicians. VOA’s George Putic reports.
    Video

    Video Researchers Use 3-D Printer to Produce Transplantable Body Parts

    Human organ transplants have become fairly common around the world in the past few decades. Researchers at various universities are coordinating their efforts to find solutions -- including teams at the University of Pennsylvania and Rice University in Houston that are experimenting with a 3-D printer -- to make blood vessels and other structures for implant. As VOA’s Greg Flakus reports from Houston, they are also using these artificial body parts to seek ways of defeating cancerous tumors.
    Video

    Video Helping the Blind 'See' Great Art

    There are 285 million blind and visually impaired people in the world who are unable to enjoy visual art at a museum. One New York photographer is trying to fix this situation by making tangible copies of the world’s masterpieces. VOA correspondent Victoria Kupchinetsky was there as visually impaired people got a feel for great art. Joy Wagner narrates her report.
    Video

    Video German Artists to Memorialize Refugees With Life Jacket Exhibit

    Sold in every kind of shop in some Turkish port towns, life jackets have become a symbol of the refugee crisis that brought a million people to Europe in 2015.  On the shores of Lesbos, Greece, German artists collect discarded life jackets as they prepare an art installation they plan to display in Germany.  For VOA, Hamada Elrasam has this report from Lesbos, Greece.
    Video

    Video E-readers Help Ease Africa's Book Shortage

    Millions of people in Africa can't read, and there's a chronic shortage of books. A non-profit organization called Worldreader is trying to help change all that one e-reader at a time. VOA’s Deborah Block tells us about a girls' school in Nairobi, Kenya where Worldreader is making a difference.