IMF ‘Closely Following’ Egypt Political Developments

With no deal reached and Egypt seemingly on the brink of major political change, the fate of a long-sought $4.8 billion aid package from the International Monetary Fund hangs once again in the balance.

“We follow closely all developments in Egypt,” an IMF spokesperson who preferred to remain anonymous told Ahram Online on Monday.

Massive demonstrations across the country demanding the removal of Islamist President Mohamed Morsi on Sunday elicited an ultimatum by Egypt’s armed forces for “political forces” to “meet the people’s demands” or accept a military-imposed roadmap for Egypt’s future.

“What is important for us is that Egypt develops and implements a home-grown programme that addresses the economic and financial challenges, has broad domestic ownership, and benefits from international financial support,” explained the spokesperson.

Achieving broad political consensus on the loan and required economic reforms has been a thorn in the side of Morsi’s government, with parties from across the political spectrum criticising the lack of transparency that characterised the negotiations between the authorities and the fund.

But a lack of consensus had not stopped Egyptian Planning Minister Amr Darrag from telling state news agency MENA early in June that his country would sign the long-awaited loan deal with the fund by the end of the month.

In April, talks between the Egyptian government and an IMF technical team in Cairo ended without an agreement.

In a statement, the international lender said at the time that Egyptian authorities needed to address the country’s fiscal and balance-of-payments deficits in a “socially balanced way.”

As recently as 20 June, the IMF reported that it was making progress in the negotiations.

“Our work with the Egyptians is producing increased understanding on many of the remaining issues,” said IMF spokesman Gerry Rice, referring to “the resolution of remaining technical issues and completion of the preparatory work by the authorities.”

“We’re looking in particular for early decisions by the authorities on revenue measures to reduce the large budget deficit and on their plans for the use of smart cards to reduce the cost of gasoline and diesel subsidies,” said the IMF spokesman, who declined to set a timeframe for the deal.

At a press conference on 22 June, Egypt’s Prime Minister Hisham Qandil announced that a smart-card system to regulate the purchase of state-subsidised fuels would come into effect in July for diesel and in August for gasoline.

But contrary to what the government had claimed months earlier, officials explained that the smart cards would not immediately be used to ration subsidised fuel, and that card owners would be entitled to unlimited quantities of subsidised fuel.

Rather, officials explained, the new system was geared to combating the smuggling of subsidised fuel, which they blamed for Egypt’s recurring fuel shortages.

Cutting fuel subsidies, which account for nearly a fifth of budget expenditures, is a key aspect of the economic reform programme, which aims to tackle Egypt’s ballooning budget deficit.

Egypt’s total bill for energy subsidies reached some EGP120 billion in the 2012/13 fiscal year, while the budget deficit reached EGP 205 billion – or 11.8 percent of GDP – in the first 11 months of that year, a 50-percent increase from the same period versus the previous year.

According to a draft budget awaiting final approval by the legislature, Egypt’s budget deficit is expected to shrink to EGP 195.3 billion – or 9.5 percent of GDP – in the 2013/14 fiscal year.