New economic plan for Egypt

New economic plan for Egypt

Cairo is trying to secure a $4.8 billion IMF loan to shore up its finances as the economy faces a deep crisis rooted in two years of political turmoil that have drained foreign currency reserves to a critical level.

February 27, 2013 5:22 by Reuters

Egypt will send a new economic plan needed to secure a lifeline from the International Monetary Fund to parliament within two days after releasing a summary that makes no mention of cutting subsidies and other politically-sensitive measures.

The turmoil has driven away foreign investors and tourists who are a major source of the foreign currency Egypt needs to import fuel and wheat.

Finance Minister Al-Mursi Hegazy told reporters a revised economic reform plan would be sent to the parliament within two days, and then to the IMF immediately afterwards.

“As soon as the laws are sent to parliament, they will be sent (to the IMF),” he told reporters, adding he expected a response from the IMF within about 10 days to two weeks after the plan was sent to them.

Asked when Egypt planned to invite an IMF delegation to resume talks on the loan, Hegazy said: “I think within 10 days to two weeks.”

The Fund and Egypt agreed on the loan in principle in November, but ratification was suspended at Cairo’s behest in December after Mursi announced and then suspended tax increases that drew heavy criticism from the opposition.

A summary of the revised plan released by the government on Monday called for a levy on stock market transactions and a flat 25 percent tax on Egyptian companies, but did not spell out plans for cutting subsidy spending or detail other tax increases.

The government aims to raise 450 million Egyptian pounds ($66.8 million) a year from the stock exchange tax, Hani Qadri, Egypt’s deputy minister of finance said at a press conference.

SUBSIDIES

A fifth of the state budget goes on energy subsidies alone, but cutting them is widely unpopular, making it a sensitive issue ahead of parliamentary elections scheduled to start in April.

As part of its plan to cut fuel subsidies, the government raised prices for fuel oil by 50 percent last week for some industries. It also plans to implement a quota system for subsidised fuel in July and hopes energy use in the country to be at cost price within three years.

On Monday, Investment Minister Osama Saleh said Egypt would reopen talks with the IMF next month.

Egypt’s foreign currency reserves tumbled to $13.6 billion in January from $36 billion before Mubarak was overthrown in February 2011. The Egyptian pound has fallen over 8 percent since the central bank started auctioning dollars at the end of December.

The government is targeting a deficit for this financial year of 189.7 billion Egyptian pounds ($28 billion), or 10.9 percent of total economic output.