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RUNNING OUT OF OPTIONS: Egypt seeks $4.8 billion IMF loan for stricken economy

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An IMF deal would help Egypt to add credibility to economic reforms needed to restore investor confidence. Investors' reluctance to return is born partly of fears that a sharp currency devaluation could wipe out any returns.

August 22, 2012 5:35 by



“God willing there will be an agreement on a map for work extending to November or the beginning of December during which the loan will be signed with the IMF,” he said.

 

During 18 tumultuous months since the overthrow of autocratic leader Hosni Mubarak, successive Egyptian governments negotiated with the IMF to secure emergency funding. An army council took charge after Mubarak fell on Feb. 11, 2011.

 

RUNNING OUT OF OPTIONS

 

Egypt’s fiscal and balance of payments problems have worsened. An exodus of foreign investors in the wake of the turmoil left local banks shouldering much of the short-term and other lending to the state.

 

The government in the 12 months to end-June also borrowed nearly $12 billion, or about 4.5 percent of GDP, directly from the central bank, an unusual measure indicating it was running out of options to finance its budget deficit.

 

Foreign reserves have fallen to well under half levels seen before last year’s popular uprising against Mubarak and investors’ reluctance to return is born partly of fears that a sharp currency devaluation could wipe out any returns.

 

An IMF deal would help Egypt to add credibility to economic reforms needed to restore investor confidence.

 

Based on government figures, the budget deficit for 2012/2013 will represent 7.9 percent of gross domestic product (GDP), down from 8.2 percent a year earlier. But most economists forecast lower GDP growth than the government’s estimate of 4-4.5 percent.

 

Tax receipts have suffered from a weak economy and the previous government boosted spending to meet popular demands for better living standards after Mubarak’s overthrow.

 

Aid promised by foreign donors last year was largely absent until June, when funds arrived from Saudi Arabia. It transferred $1.5 billion as direct budget support, approved $430 million in project aid and said it would allow Cairo to use a $750 million credit line to import oil products.

 

Qatar also pledged $2 billion in support this month.

 

By Yasmine Saleh and Patrick Werr

 



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