IMF moves on $3.2bn loan to help Egypt to avert crisis

IMF officials hope to seal a US$3.2 billion (Dh11.75bn) loan to Egypt by next month, says the head of the mission visiting the country. How soon the funding flows will hinge on getting broad political support in Egypt for the loan and related economic plan and the country's ability to secure help from other donors, said Masood Ahmed, the director of the IMF's Middle East, North Africa and Central Asia department. "The key for us is to ensure that the programme has broad political support to give confidence and ensure its implementation beyond the self-determined political transition," Mr Ahmed said in Cairo. A technical team from the IMF would follow Mr Ahmed's visit next week to work out more details about the deal, he said. If the talks progressed as planned, the agreement could be in place by next month, he said. Egypt needs the cash to help to stave off a fiscal crisis and bolster investor confidence in the economy. "The overall aim is to provide macro-stability," Mr Ahmed said. "The broad objective of the programme is to restore confidence in the economy and to create jobs, which Egypt needs now, particularly after anaemic growth. "The second objective is to narrow fiscal and external imbalances, and the third is protect the most vulnerable households." Mr Ahmed would not comment on the details of the economic programme that Egypt's interim government has submitted to the IMF. It is believed to lay out reforms the government would make to support the funding. It is also expected to detail how the country intends to obtain aid from other donors to raise the estimated $11bn of external funding it needs in the next two years. Tax increases are believed to be part of the deal. The country may raise sales tax as well as levies on property, alcohol and cigarettes over the next five years to secure the funding, the Egyptian news website Ahram Online reported, citing a government document it had obtained. Central to the plan is the goal of cutting debt to about 60 to 65 per cent of GDP by 2016-2017, mainly through raising tax revenue and one-off sales, the website reported, citing the document. The IMF has for years pressed Egypt to reform its tax system to broaden the public revenue base. A rolling back of subsidies on fuel and other basic items is also believed to be coming. "There seems to be three or four requests which seem to be very reasonable for any government to act upon," said Sherif El Kilany, the Middle East and North Africa tax leader at Ernst & Young. "One challenge is the government is also facing the pressure of the street. Any changing in pricing of strategic goods will not be welcomed by the people." The reforms were unlikely to happen before presidential elections in May as the interim government lacked sufficient power, he said. The IMF, however, would be "understanding" , he added. "This is really the key to changing legislation," he said. "I don't expect changes to legislation until June 2012."