Egypt’s interim government is to resume talks with the International Monetary Fund (IMF) over an emergency $3-billion credit facility amid signs of a deepening crisis in its already hard-hit economy.
The economic woe in Egypt — where 40% of people live on or below the poverty line — has become one of the biggest problems facing the country a year on from the start of the popular uprising that pushed former president Hosni Mubarak from power.
Almost a year of political uncertainty, including three Cabinet reshuffles, a moveable timetable for transition to civilian rule and an insistence that any financial assistance should be unconditional, have followed — leading to fears the country’s economy could collapse.
The return to the IMF is embarrassing for the interim government after its clumsy handling of negotiations for a similar loan offered last June which Egypt rejected rather than accept conditions attached to it.
IMF sources said on Tuesday that Kamal al-Ganzouri, Egypt’s prime minister, had requested the reopening of negotiations with Masood Ahmed, the IMF’s Middle East and North Africa director, who is expected to travel to Cairo this week.
Sporadic outbreaks of violence, particularly in Cairo, have discouraged foreign investors and devastated the tourism industry, on which Egypt is heavily reliant. Empty hotels and deserted riverboat restaurants and clubs have become the most visible sign of the city’s abandonment by foreign tourists.
Lay-offs
Among those affected by the crisis is Raeb Fedky, owner of Select Egypt Travel, a tour company that operates Nile cruises and other packages. Select has had to lay off half of its staff in Cairo — 10 employees.
Fedky fears that unless there is urgent action, Egypt’s economy could face collapse. “People are not coming because of the political crisis,” he said. “If they do come they are not coming to Cairo but going straight to Luxor or Sharm el-Sheikh.
“Like all Egyptians, I am worried about the economy because the future is not clear. We don’t know where Egypt is going or what the economic plan will be.”
According to the country’s tourism ministry, tourism dropped last year by almost a third, costing the economy at least $9-billion.
The tourism industry has also been spooked by comments from figures in the Islamist Freedom and Justice Party — which is expected to win 40% of the votes, the largest share, in the country’s elections — suggesting the party may ban alcohol.
Economic figures released this week have painted an increasingly bleak picture, even as Egyptians have been voting in elections for the lower house, which will select the body to draw up its new Constitution.
Sovereign debt downgraded
Egypt’s foreign reserves have halved in 12 months to $18.1-billion — enough for a couple of months of imports — while inflation has continued to climb from over 7% in the autumn to 10.4% in December on the back of high food prices.
Egypt’s sovereign debt has also been downgraded in recent weeks by three major credit rating agencies.
The grim outlook for ordinary Egyptians is likely to be exacerbated by new austerity measures announced by Momtaz el-Saeed, the finance minister.
The finance ministry has said it plans to impose cuts to bonuses of government employees of 10% while reducing overall government spending by 3%.
The government also said it plans to remove energy subsidies to heavy industries.
That statement followed an announcement by Ganzouri that the government’s spending would be reduced by $3.3billion — seen as a preparatory move before reopening negotiations with the IMF.
Urgent balance of payments
A new IMF loan could be made available under the organisation’s recently launched rapid financing instrument, designed to help countries with urgent balance of payments needs.
Christine Lagarde, the IMF’s managing director, said in December the IMF has $35-billion available to lend to countries in the Middle East and North Africa that request financing.
Earlier this week, Egypt’s central bank said it sold only half of the seven-year bonds it had offered on behalf of the government.
This is because foreign investors are still shunning Egypt’s debt market, amid fears that the Egyptian pound is set for a sharp fall that could wipe out even the generous returns on offer on government debt.
“It’s hard to get anyone to take seven years on anything, let alone Egypt,” one Middle East investment analyst said. “There’s a lot of worry over where Egypt’s economy is heading.” —