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QATAR TO THE RESCUE: Gulf state throws Egypt a $2.5 billion lifeline

"Qatar wants a solid regional ally in Egypt. Along with Turkey, this allegiance or axis is fundamental to the regional role Qatar is trying to carve for itself" says analyst

January 9, 2013 7:51 by

The IMF’s Middle East and Central Asia director, Masood Ahmed, left Cairo on Tuesday after meeting Mursi the day before.

“Negotiations with the IMF team will resume from where they stopped,” Mursi’s spokesman, Yasser Ali, said. Asked when the IMF’s technical committee would visit Cairo, he said it was expected in the next two to three weeks.

The head of the IMF said the Egyptian government must strongly recommend the $4.8 billion loan agreement to its people as a step towards stabilising the economy.

“The IMF needs to have the commitment of the political authorities that can actually endorse the programme, own it, and propose it to the population as theirs,” Christine Lagarde told Reuters during a visit to Ivory Coast.

Egypt struck an initial loan accord with the IMF in November but last month postponed the deal because of political unrest set off by Mursi’s drive to fast-track a new constitution.

The unrest led Mursi to suspend increases in the sales tax on a range of goods and services that were deemed necessary to conclude an IMF deal.

Analysts said the Qatari funds gave breathing space to Mursi and to the Muslim Brotherhood’s party from which he hails ahead of the election due to begin in the next few months.

“It’s a big break for the Mursi government,” said Shadi Hamid of the Brookings Doha Center. “It does give the Egyptian government more time to negotiate the (IMF) deal and build popular support for it.”

Said Hirsh, an economist with Maplethorpe, said it was in no way a replacement to the IMF loan, as it was not conditional on implementing economic reforms sought by investors.

“Further delays to the IMF loan will not bode well for Egypt‘s external position. For now, foreign investors are still likely to sit and wait until a deal with the IMF is reached.”

The Egyptian pound weakened to a record low of about 6.48 to the dollar on Tuesday after the central bank offered $60 million in the latest of a series of foreign currency auctions introduced in an attempt to contain the currency crisis.

The pound has weakened 4.6 percent on the interbank market and the central bank has spent a total of $420 million in the auctions since the system began on Dec. 30.

Foreign reserves have fallen by more than $20 billion and the currency has lost more than a tenth of its value and during the turbulent political transition since Mubarak’s fall and the flight of tourists and investors, two Egypt‘s main sources of foreign exchange.

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