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

    Russian-speaking Muslim Exiles Fear Possible Russia-Turkey Thaw

    Exiled from Russia as Islamic radicals and extremists, thousands found asylum in Turkey

    US Presidential Election Ends at Conventions for Territorial Citizens

    Citizens of US territories like Guam or Puerto Rico enjoy participation in US political process but are denied right to vote for president

    UN Syria Envoy: 'Devil Is in the Details' of Russian Aleppo Proposal

    UN uncertain about the possible humanitarian impact of Russian proposal to establish escape corridors in Aleppo

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Uganda Unveils its First Solar-powered Busi
    X
    July 28, 2016 4:16 AM
    A solar-powered bus described by its Ugandan makers as the first in Africa has made its public debut. Kiira Motors' electric bus, Kayoola, displayed recently at a stadium in Uganda's capital. From Kampala, Maurice Magorane filed this report narrated by Salem Solomon.
    Video

    Video Uganda Unveils its First Solar-powered Bus

    A solar-powered bus described by its Ugandan makers as the first in Africa has made its public debut. Kiira Motors' electric bus, Kayoola, displayed recently at a stadium in Uganda's capital. From Kampala, Maurice Magorane filed this report narrated by Salem Solomon.
    Video

    Video Silicon Valley: More Than A Place, It's a Culture

    Silicon Valley is a technology powerhouse and a place that companies such as Google, Facebook and Apple call home. It is a region in northern California that stretches from San Francisco to San Jose. But, more than that, it's known for its startup culture. VOA's Elizabeth Lee went inside one company to find out what it's like to work in a startup.
    Video

    Video Immigrant Delegate Marvels at Democratic Process

    It’s been a bitter and divisive election season – but first time Indian-American delegate Dr. Shashi Gupta headed to the Democratic National Convention with a sense of hope. VOA’s Katherine Gypson followed this immigrant with the love of U.S. politics all the way to Philadelphia.
    Video

    Video Philadelphia Uses DNC Spotlight to Profile Historic Role in Founding of United States

    The slogan of the Democratic National Convention now underway in Philadelphia is “Let’s Make History Again” which recognizes the role the city played in the foundation of the United States in the 18th century. As VOA’s Kane Farabaugh reports, local institutions are opening their doors in an effort to capitalize on the convention spotlight to draw visitors, and to offer more than just a history lesson.
    Video

    Video A Life of Fighting Back: Hillary Clinton Shatters Glass Ceiling

    Hillary Clinton made history Thursday, overcoming personal and political setbacks to become the first woman to win the presidential nomination of a major U.S. political party. If she wins in November, she will go from “first lady” to U.S. Senator from New York, to Secretary of State, to “Madam President.” Polls show Clinton is both beloved and despised. White House Correspondent Cindy Saine takes a look at the life of the woman both supporters and detractors agree is a fighter for the ages.
    Video

    Video Dutch Entrepreneurs Turn Rainwater Into Beer

    June has been recorded as one of the wettest months in more than a century in many parts of Europe. To a group of entrepreneurs in Amsterdam the rain came as a blessing, as they used the extra water to brew beer. Serginho Roosblad has more to the story.
    Video

    Video First Time Delegate’s First Day Frustrations

    With thousands of people filling the streets of Philadelphia, Pennsylvania for the 2016 Democratic National Convention, VOA’s Kane Farabaugh narrowed in on one delegate as she made her first trip to a national party convention. It was a day that was anything but routine for this United States military veteran.
    Video

    Video Commerce Thrives on US-Mexico Border

    At the Democratic Convention in Philadelphia this week, the party’s presumptive presidential nominee, Hillary Clinton, is expected to attack proposals made by her opponent, Republican presidential nominee Donald Trump, to build a wall along the U.S.-Mexico border. Last Friday, President Barack Obama hosted his Mexican counterpart, President Enrique Peña Nieto, to underscore the good relations between the two countries. VOA’s Greg Flakus reports from Tucson.
    Video

    Video Film Helps Save Ethiopian Children Thought to be Cursed

    'Omo Child' looks at effort of African man to stop killings of ‘mingi’ children
    Video

    Video London’s Financial Crown at Risk as Rivals Eye Brexit Opportunities

    By most measures, London rivals New York as the only true global financial center. But Britain’s vote to leave the European Union – so-called ‘Brexit’ – means the city could lose its right to sell services tariff-free across the bloc, risking its position as Europe’s financial headquarters. Already some banks have said they may shift operations to the mainland. Henry Ridgwell reports from London.
    Video

    Video Recycling Lifeline for Lebanon’s Last Glassblowers

    In a small Lebanese coastal town, one family is preserving a craft that stretches back millennia. The art of glass blowing was developed by Phoenicians in the region, and the Khalifehs say they are the only ones keeping the skill alive in Lebanon. But despite teaming up with an eco-entrepreneur and receiving an unexpected boost from the country’s recent trash crisis the future remains uncertain. John Owens reports from Sarafand.
    Video

    Video Migrants Continue to Risk Lives Crossing US Border from Mexico

    In his speech Thursday before the Republican National Convention, the party’s presidential candidate, Donald Trump, reiterated his proposal to build a wall along the U.S.-Mexico border if elected. Polls show a large percentage of Americans support better control of the nation's southwestern border, but as VOA’s Greg Flakus reports from the border town of Nogales in the Mexican state of Sonora, the situation faced by people trying to cross the border is already daunting.

    Special Report

    Adrift The Invisible African Diaspora