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

China’s Influence Grows With New Infrastructure Bank

Multibillion-dollar China-backed and BRICS-supported Asian Infrastructure Investment Bank seen as possible challenger to such lenders as IMF, World Bank More

Video Rabbi Hits Road to Heal Jewish-Muslim Relations in France

Rabbi Michel Serfaty makes the rounds in his friendship bus to encourage dialogue and break down barriers between the two groups More

Post-deal Iran Leaders Need 'Economic Momentum' to Solidify

Economists say deal could inject more than $100 billion into coffers - not enough to entirely rescue ailing economy - but maybe adequate to create 'economic momentum' More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
US Gay Marriage Ruling Yields Real-life Impacti
X
Michael Bowman
June 28, 2015 10:05 PM
Friday’s landmark Supreme Court decision legalizing same-sex marriage throughout the United States is an outcome few thought possible just years ago, and shows a nation that increasingly tolerates and even celebrates the hopes and aspirations of gay people. VOA’s Michael Bowman spoke to a same-sex couple that will benefit from the high court ruling, and to a Christian scholar who is apprehensive about its potential consequences for America’s faith community.
Video

Video US Gay Marriage Ruling Yields Real-life Impact

Friday’s landmark Supreme Court decision legalizing same-sex marriage throughout the United States is an outcome few thought possible just years ago, and shows a nation that increasingly tolerates and even celebrates the hopes and aspirations of gay people. VOA’s Michael Bowman spoke to a same-sex couple that will benefit from the high court ruling, and to a Christian scholar who is apprehensive about its potential consequences for America’s faith community.
Video

Video Syrians Flee IS Advance in Hasaka

The Syrian government said Monday it has taken back one of several districts in Hasaka overrun by Islamic State militants. But continued fighting elsewhere in the northern city has forced thousands of civilians from their homes. In this report narrated by Bill Rodgers, VOA Kurdish Service reporter Zana Omer describes the scene in Amouda, where some of the displaced are taking refuge.
Video

Video Rabbi Hits Road to Heal Jewish-Muslim Relations in France

France is on high alert after last week's terrorist attack near the city Lyon, just six months after deadly Paris shootings. The attack have added new tensions to relations between French Jews and Muslims. France’s Jewish and Muslim communities also share a common heritage, though, and as far as one French rabbi is concerned, they are destined to be friends. From the Paris suburb of La Courneuve, Lisa Bryant reports about Rabbi Michel Serfaty and his friendship bus.
Video

Video S. Korea Christians Protest Gay Rights Festival

The U.S. Supreme Court decision mandating marriage equality nationwide has energized gay rights supporters around the world. Gay rights remain a highly contentious issue in a key U.S. ally, South Korea, where police did a deft job Sunday of preventing potential clashes between Christian protesters and gay activists. Kurt Achin reports from Seoul.
Video

Video Saudi Leaks Expose ‘Checkbook Diplomacy’ In Battle With Iran

Saudi Arabia’s willingness to wield its oil money on the global diplomatic stage appears to have been laid bare, after the website WikiLeaks published tens of thousands of leaked cables from Riyadh’s Ministry of Foreign Affairs. VOA's Henry Ridgwell reports.
Video

Video Nubians in Kenya Face Land Challenges

East Africa's ethnic Nubians have a rich cultural history that dates back thousands of years, but in Kenya they are facing hardships, including the loss of lands they have lived on for generations. They say the government has reneged on its pledge to award them title deeds for the plots. VOA's Lenny Ruvaga reports.
Video

Video Syrian Refugees Return to Tal Abyad

Syrian refugees in Turkey confirm they left their hometown of Tal Abyad because of intense fighting and coalition airstrikes, not because Kurdish fighters were engaged in ethnic cleansing, as some Turkish officials charged. VOA Kurdish Service reporter Zana Omer, in Tal Abyad, finds that civilians coming back to the town agree, as we hear in this report narrated by Roger Wilkison.
Video

Video Military Experts Question New Russian Tank Capabilities

Russia has been showing off its new tank design – the Armata T-14. Designers claim it is 20 years ahead of current Western designs - and driving it feels like playing a computer game. But military analysts question those assertions, and warn the cost could be too heavy a burden for Russia’s struggling economy. Henry Ridgwell reports.
Video

Video In Kenya, Police Said to Shoot First, Ask Questions Later

An organization that documents torture and extrajudicial killings says Kenyan police were responsible for 1,252 shooting deaths in five cities, including Nairobi, between 2009 and 2014, representing 67 percent of all gun deaths in the areas reviewed. Gabe Joselow has more from Nairobi.
Video

Video In Syrian Crisis, Social Media Offer Small Comforts

Za’atari, a makeshift city in Jordan, may be the only Syrian refugee camp to tweet its activities, in an effort to keep donors motivated as the war in Syria intensifies and the humanitarian crisis deepens. Inside the camp, families say mobile phone applications help hold together families that are physically torn apart. VOA’s Heather Murdock reports.
Video

Video Chemical-Sniffing Technology Fights Australia's Graffiti Vandals

Cities and towns all over the world spend huge amounts of resources battling graffiti writers who deface buildings, public transport vehicles and even monuments. Authorities in Sydney, Australia, hope a new chemical-sniffing technology finally will stop vandals from scribbling on walls in the passenger areas of commuter trains. VOA’s George Putic has more.
Video

Video Cambodia Struggling to Curb Child Labor

Earlier this year a United Nations report found 10 percent of Cambodian children aged 7-14 are working – one of the highest rates in the region – and said one in four children in that age bracket are forced to quit school to help their families. Although the child labor rate has dropped over the past decade, Cambodia has a lot more to do – including keeping more children in school. Robert Carmichael reports for VOA from Phnom Penh.

VOA Blogs