Morsi Adviser Blames IMF for Delaying Egypt $4.8 Bln Loan Agreement

A leading adviser to Egypt’s president said Cairo had met all the requirements for a $4.8bn loan agreement with the International Monetary Fund and suggested the multilateral body was holding up the deal.

Essam al-Haddad, the closest aide to Mohamed Morsi, said that required measures, including a phased-out subsidies plan and a sales tax law, were now part of a programme sent to the fund.

“The question [of when a deal would be signed] should be addressed to the IMF,” Mr Haddad told the Financial Times during a visit to London last week. “There’s always something coming up,” he said, complaining that fund officials wanted to see greater political consensus on the programme.

The two-year negotiations for a loan that could stabilise Egypt’s economy have run into repeated snags, with the fund this year asking for more robust reforms.

Although the IMF has been seeking the widest possible consensus to ensure that the reforms would be implemented, its main concern has been on the economic details of the programme and the government’s ability to rein in public finances.

Despite Egyptian suspicions of a political motive behind the delay, the US and other western shareholders of the fund are still believed to support an agreement, which should unlock bigger lending and investment packages.

“We have been making good progress on the technical side and we look forward to resolving the remaining technical issues which would enable us to bring these negotiations to a successful conclusion,” Masood Ahmad, the IMF’s regional director, said.

Diplomats and analysts are speculating that no deal will be signed before parliamentary elections, which Mr Haddad said would be held within three to six months.

The poll has been repeatedly postponed, amid disputes between the government and the supreme constitutional court over the electoral law, one of many battles Mr Morsi and his Muslim Brotherhood have been confronting since his election last year.

Egypt’s dwindling foreign exchange reserves have raised fears of economic collapse. Capital Economics said this week that public finances could spiral out of control if political uncertainty persisted. The London-based consultancy said the budget deficit had risen to 14 per cent in nominal terms, from 8 per cent before the 2011 uprising that overthrew Hosni Mub arak. Public sector debt, meanwhile, had reached 80 per cent of gross domestic product, it added.

Mr Haddad said the deficit would be brought down to 9.5 per cent by June 2014, as requested by the IMF, citing moves to cut waste and fight corruption and efforts to recoup unpaid taxes from businesses and funds from people connected with the former regime.

The government, however, has been rationing foreign currency and delaying payments to suppliers. International oil companies, for example, are owed billions of dollars, and some companies have had to accept payment in Egyptian pounds.

Mr Haddad met BP and BG of the UK this week. “They [the companies] see huge potential of investment and the interest in staying in the market is big. But they want a settlement on arrears which shows that we’re trying to find a solution and not ignoring it,” he said.

He acknowledged that the lack of an economic dividend from the revolution had damaged the popularity of the Brotherhood. But he said that the Islamist group would still perform well in the next elections.