U.S. Treasury Secretary Jacob Lew signaled Monday that Washington might give the go ahead for international emergency loans for Egypt if Cairo does more to overhaul the country’s economy.
Meeting with Egyptian finance minister Hany Kadry Dimian in Cairo, Mr. Lew said he explored “ways in which the U.S. might support Egypt’s efforts to reform and strengthen its economy.”
“We discussed Egypt’s need for external assistance in order to support the long-term, broad-based, sustainable growth of the Egyptian economy and greater economic security,” Mr. Lew said in prepared remarks.
The U.S. has long viewed Egypt, the Arab world’s most populous country, as a linchpin for regional stability. That is all the more important as escalating conflicts in Syria and Iraq threaten to spread into neighboring Mideast states.
But bailout talks between Egypt and the International Monetary Fund have been stalled for three years. A series of political upheavals and the reluctance of successive governments to implement budget and economic overhauls have kept loan negotiations on hold. The IMF, including its most powerful shareholder, the U.S., won’t allow access to the fund’s low-interest loans without Cairo committing to an economic plan that can restore the country’s finances.
The U.S. has funneled several hundred million dollars to the country, but that is not nearly near enough to cover Egypt’s needs. Rather, the U.S. is looking to leverage the IMF’s financing and economic program to help encourage Cairo to carry out a complete economic overhaul and set the country on a road to long-term stability.
Signs are now emerging that bailout talks could resume again in the coming months, especially after President Abdel Fattah Al Sisi ’s government pushed through a number of new economic policies that the IMF has been recommending for years.
Mr. Lew praised those efforts, including cuts to fuel subsidies that have historically pushed Cairo’s spending deep into the red. Mr. al-Sisi’s administration is also channeling more cash into health-care, social programs and education.
But Mr. Lew indicated additional efforts are needed before Cairo can tap the IMF’s cash stockpile.
“We welcome these reforms and urge the Egyptian government to continue on this path,” Mr. Lew said.
Investors are still skittish about pouring cash into the country after several years of major political upheaval. Despite a plummeting Egyptian pound and dwindling cash reserves, Cairo has been reluctant amid the turmoil to make the politically-tough policy changes needed for an IMF emergency loan. Regional allies have kept the country afloat, but economists say that that cash is only a temporary fix. Large-scale economic overhauls are needed to restore the economy.
“Clearly, more needs to be done to create an economic environment for growth and jobs going forward,” said senior IMF economist Thomas Helbling earlier this month, ahead of meetings between IMF Managing Director Christine Lagarde and top finance officials from Cairo. The “difficult reforms” that Egypt’s government have taken are only “the first steps for an improved future,” he said.
The IMF plans to send a team of economists to Cairo in November for a full review of the country’s economy for the first time in three years.
Ultimately, Cairo wants to attract enough foreign investment and spur growth to fuel the economy. But as Egypt makes the transition to political and economic stability, the country still needs major international financing to cover budget shortfalls.
That is why Egypt’s central bank governor says Cairo will likely need IMF loans to help pull the country out of its economic mire.
Source: Wall Street Journal