Egypt said on Tuesday it would not sign any “emergency” loan with the International Monetary Fund, ruling out stop-gap funding to tide it over as it struggles with a soaring budget deficit and falling currency reserves.
Egypt has been seeking a full $4.8 billion from the IMF instead in order to stave off a balance of payments crisis, but securing the aid would involve a commitment to austerity measures that are likely to lead to unrest at a time when President Mohamed Mursi is already struggling to maintain law and order.
The IMF said on Monday that Egypt had the option of using the Rapid Financing Instrument, a lending facility designed to provide rapid and limited assistance to member countries.
Analysts say such short-term funding would be a useful compromise for the government while it negotiates an IMF standby loan programme and could help the country scrape through until after parliamentary elections.
Cabinet spokesman Alaa el-Hadidi said on Tuesday, however, that Egypt was not interested in this option and that any loan agreement would be within the framework of the country’s economic programme.
“There will not be a fast or emergency loan,” Hadidi told reporters, adding that no timing had been set yet for an IMF mission to visit Egypt to reopen negotiations on a full loan.
“There is no agreement yet over the arrival of the mission, and we are waiting for them,” he said.
Earlier, Planning and International Cooperation Minister Ashraf al-Araby said an IMF mission was expected to come to Cairo in the coming days.
Finance Minister Al-Mursi Al-Sayed Hegazy also said on Tuesday that Egypt had rejected a bridge loan due to heightened risks in the local economy, state news agency MENA reported.
The emergency funds on offer could amount to about $750 million, which is roughly 50 percent Egypt’s quota share, which determines how much the IMF can lend.
Without an emergency loan, Egypt has very few places it can turn to for external funding, economists say.
“There is little option to get external support besides the IMF, especially now that Qatar said it will not give Egypt money for now,” Economist Mohamed Abu Basha at EFG Hermes said.
Egypt has put on hold the most sensitive reforms, such as reducing fuel subsidies, he said, noting a lack of political consensus. Cairo might be able to finance its domestic budget deficit through issuing treasury bills and bonds to last it through this fiscal year, but other problems loom.
“Externally there is trouble, given that we only have $13.5 billion in foreign currency, and given the diminishing value of the Egyptian pound,” he said.
Last month President Mursi called for elections to be held between April and June, but a court later cancelled his decree, throwing the electoral process into limbo and raising doubts that Cairo could secure prompt IMF aid.
Economists say Egypt, two years after overthrowing former authoritarian President Hosni Mubarak, is risking a full-blown economic crisis. Foreign currency reserves have fallen to little more than a third of their levels before the 2011 revolution, forcing the central bank to ration dollars.
The Egyptian pound has lost more than 8 percent of its value against the U.S. dollar since the end of December as concern deepens about the economy, which is being undermined by political instability and unrest. Like unemployment, officially at 13 percent, food and fuel prices have risen.
“The problem with Egypt is that it cannot implement the economic reform programme without facing a backlash,” independent economist Osama Mourad said.
The IMF said on Monday that Egypt needs to take bold and ambitious policy action to address its economic problems without further delay and said it was up to Cairo to decide whether it wanted to tap stop-gap funding.
While the emergency funding is not nearly enough to plug the funding gap, analysts have said it could also help unleash additional loans from allies in the region, including benefactor Qatar, which said on Monday it had no immediate plans to lend Egypt more money.