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Egypt to reopen IMF loan talks next month as crisis bites

By Reuters - Feb 25,2013 - Last updated at Feb 25,2013

CAIRO — Egypt will reopen talks with the International Monetary Fund (IMF) next month on a $4.8 billion loan, a minister said on Monday, and the government laid out plans to reverse a slide in currency reserves and tackle the dire state of public finances.

A revised government economic reform programme, essential for securing a lifeline from the International Monetary Fund, called for a levy on stock market transactions and a flat 25 per cent tax rate for Egyptian companies, many of which are struggling for survival in a national economic crisis.

Investment Minister Osama Saleh expressed hope that help was on its way as Egypt battles with a falling currency and a budget deficit soaring to unaffordable levels.

“There have been pledges of international and regional support to Egypt and most of these are in progress,” he told a conference in Dubai. “Negotiations with the IMF over the $4.8 billion loan will resume in early March.”

Cairo and the IMF agreed in principle last November on the loan, based on an earlier version of the reform programme, but talks were suspended in December at Egypt’s behest due to street violence. Any IMF deal would involve unpopular austerity measures just as Egyptians vote in four-stage parliamentary elections due to be held from April until late June.

Under the latest programme, the government will impose a 0.001 per cent levy on stock market transactions, according to excerpts of the programme seen by Reuters, and corporate tax will be standardised at 25 per cent. 

Current rates are 20 and 25 per cent, meaning tax bills for some firms will rise at a time of great economic hardship.

The programme also seeks to end the alarming slide in   foreign currency reserves as the central bank has tried to prop up the Egyptian pound in recent years. It targets reserves of $19 billion by the end of June, climbing to $22.5 billion a year later. 

Reserves tumbled to $13.6 billon in January from $36 billion before the overthrow of president Hosni Mubarak in February 2011, and the Egyptian pound has fallen 8.2 per cent since the central bank began auctioning dollars at the end of December.

Cautious economists 

Economists expressed caution about the figures, and whether Egypt could secure IMF help by the end of the financial year in June. “They had their targets before and they didn’t reach them,” said Mona Mansour, chief economist at CI Capital.

“Maybe they are targeting to have the IMF programme by then, but I think it will be difficult. Other than that, they may have an agreement with regional countries,” she said.

Egypt has secured funding from Qatar in recent months but this has not halted the fall in reserves or the drop in the pound. On top of the economic crisis, Egypt is in political turmoil with the Islamist government of President Mohamed Morsi in conflict with the liberal and leftist opposition. 

Some opposition politicians want to boycott the elections, which are supposed to complete Egypt’s transition to democracy after Mubarak’s fall, over a range of disputes including a new constitution produced by an Islamist-dominated assembly.

Mansour noted that the loan talks had been repeatedly delayed during the political turmoil. “The situation has to be calmer politically,” she said.

The revised reform programme confirmed the daunting budget problems that the government faces. It targets a deficit for this financial year of 189.7 billion Egyptian pounds ($28 billion), or a huge 10.9 per cent of total economic output.

Even this assumes economic reforms are made and the deficit would hit 12.3 per cent of GDP without such action, it forecast.

The government gave scant details on personal income tax. The threshold below which Egyptians pay the lowest rate tax would be raised, but it gave no details of any changes in rates paid by higher earners. 

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