Egypt Has Yet to Present Reform Plan, IMF Says

The Egyptian government has yet to present a detailed economic reform program to the International Monetary Fund, suggesting it may be some time before agreement is reached on a $4.8 billion loan to support the country’s troubled economy, a senior IMF official said Sunday.

An IMF delegation arrived in Egypt last month for talks on ways to right the country’s economy, which has been battered by the sharp drop in tourism and foreign investment since the revolution that toppled former President Hosni Mubarak in February 2011. Few details have emerged of those talks, though Egyptian officials have said recently they hope to reach agreement on an IMF loan in December.

But according to Masood Ahmed, the director of the IMF’s Middle East and Central Asia Department, the Egyptian government has yet to present a formal package of economic reforms to the fund’s experts.

“The new (Egyptian) government has to come up with a program, and they are doing that now. I don’t think they have a final (program), but they said their work is sufficiently advanced to have a discussion and that is why we responded by sending a team which is in the field now,” Mr. Ahmed said in an interview.

After months of on-off discussions with the IMF, the new government of President Mohammed Morsi said in August it intended to seek the fund’s support for its economic reforms, which are widely expected to include a reduction in food and fuel subsidies as a way to curb the budget deficit.

Mr. Ahmed declined to speculate on when an agreement might be reached, though he said the IMF needs to see the final details of the government’s economic reforms before it can move ahead.

“The timetable really depends on how quickly the Egyptian authorities are ready to move,” Mr. Ahmed said. “We can’t approve a plan that is not there; that is why it is important that we take our time.”

Mr. Ahmed said that there is less pressure on Egypt to reach a quick agreement because of the recent stabilization of its foreign exchange reserves, which more than halved in the 12 months after the revolution. In recent months, Egypt’s foreign currency reserves have held steady at $15 billion, as the country has received support from oil-rich Saudi Arabia and Qatar.

The earlier erosion in Egypt’s foreign exchange reserves has prompted speculation that the central bank would be forced to devalue the Egyptian pound, which has been remarkably stable at close to 6 pounds to the U.S. dollar since the revolution. Mr. Ahmed declined to speculate on whether the pound’s value would be adjusted in any agreement with the IMF.

He said the IMF would have a better idea of the timetable for a new loan once the IMF delegation in Cairo has concluded its work.

Any IMF program must address the country’s key challenges, which include strengthening the budget, addressing the subsidy issue and lowering the country’s debt over the medium term, Mr. Ahmed said. Egypt also needs to strengthen its export sector and restore confidence to attract foreign investment.

The IMF team is currently assessing how much budget support Egypt will need in 2013. Six months ago, the IMF estimated the country’s financial needs next year at $10 billion to $12 billion, Mr. Ahmed noted. However, this number may be reassessed based on recent data, he added.

“Part of the job of our team there is to reassess Egypt’s need in the coming year,” he said. Another important element is to explain the role of the fund to Egyptian officials and dispel “the myths and misconceptions about the IMF,” Mr. Ahmed added.

The IMF will want to see broad endorsement of any agreement from the key political factions in the country, to ensure that in “two years from now, any program endorsed by the government, would be implemented and has the likelihood of success,” Mr. Ahmed said.

Egypt currently lacks a parliament and is in the process of debating a new constitution, but Mr. Ahmed said he doesn’t see that as an impediment to an agreement.

“We don’t see the impediment of moving forward over an uncertainty as such of not having a parliament. That is not an issue holding us back,” he said.

Source: Wall Street Journal