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Egypt eyes IMF deal in weeks to shore up economy

By Tamim Elyan and Tom Pfeiffer

CAIRO (Reuters) – Egypt hopes to agree a $4.8 billion IMF loan within two weeks of talks set for the end of October, ministers said on Tuesday, after long delays caused by political turmoil in the Arab world’s biggest nation.

Egypt's new Prime minister, Hisham Kandil, speaks during his first news conference at his office in Cairo August 2, 2012. REUTER/Mohamed Abd El Ghany
Egypt’s new Prime minister, Hisham Kandil, speaks during his first news conference at his office in Cairo August 2, 2012. REUTER/Mohamed Abd El Ghany

Egypt urgently needs support to prop up state coffers weakened by a turbulent transition since the popular uprising last year that toppled President Hosni Mubarak.

The IMF, which has said a loan agreement could be reached by the end of this year, wants Egypt to put a programme in place to narrow a budget deficit that has mushroomed to 11 percent of gross domestic product since the uprising.

Prime Minister Hisham Kandil said he was aiming for about 4 percent growth in fiscal 2012/13, in line with previous official forecasts but higher than economists predict, and said Egypt wanted to hit 7.5 percent growth in its five-year plan.

“We are negotiating with the IMF. Our people are travelling to Tokyo to attend the joint IMF/World Bank meeting this week,” Kandil told a conference in Cairo organised by Euromoney.

“They are inviting the IMF to come for official negotiations by the end of this month. We are hoping to reach an agreement by that time,” Kandil said.

Speaking on the conference sidelines, Finance Minister Mumtaz al-Saeed told Reuters he expected an IMF deal could be reached “within two weeks” of the IMF visit.

Egypt initially sought a loan during 2011 when the army was still in charge after Mubarak’s overthrow and Egypt was burning through its foreign reserves to shore up its currency, but the military then said it did not want to add to Egypt’s debts.

The IMF had also sought broad political consensus, tricky to secure when there was only a transitional government in place. But talks were launched again after a new cabinet was appointed by President Mohamed Mursi in the summer.

As well as IMF support, Egypt has picked up aid from Gulf Arab states, Turkey and others.

Turkey signed a concessionary loan deal with Egypt worth $1 billion this month. The finance minister said that amount would be paid in two tranches, with the first coming at the end of October and the second in January.

An IMF deal would reassure investors who want the Washington-based institute’s seal of approval on the government’s programme to revive the economy and cut back on hefty spending on subsidies.

Egypt has said its recovery will be “home grown”, seeking to reassure Egyptians who fear the IMF will impose tough austerity measures to rein in the government’s budget deficit.

One part of the economic programme is likely to be a restructuring of subsidies on petroleum products, which eat up about 25 percent of total government spending.

Analysts say measures to reduce energy subsidies are certain to be unpopular among many Egyptians, some of whom joined the uprising last year because of economic grievances.

Kandil has previously said a series of measures are needed to ensure that subsidies reach those who deserve them most.

The prime minister said achieving growth of 4 percent would create about 750,000 new jobs. However, the government has said it needs to achieve 6 percent plus if it wants to cut unemployment, officially put at about 13 percent though economists say the real figure could be much bigger.

In a Reuters poll of 10 economists in September, gross domestic product was expected to expand by 2.7 percent in the fiscal year to June 30, 2013, accelerating to 4 percent in the next financial year.

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Egypt eyes IMF deal in weeks to shore up economy

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