CAIRO: Egypt’s cabinet will reenter into talks with the International Monetary Fund (IMF), an official source told Al-Masry Al-Youm newspaper late Monday, without setting a specific date.
For over two years, Egypt has sought an IMF loan worth $4.8 billion to support its economy, plagued by political unrest and violence since the January 25 Revolution which ousted former President Hosni Mubarak in 2011.
The successive governments and the IMF entered into negotiations, but no final agreement was reached and relations became tense due to IMF efforts to persuade Cairo to undertake economic reforms like subsidy cuts and impose a value added tax.
The cabinet source did not rule out seeking a low-interest loan, whether from the IMF or other international foundations in order to cover the budget deficit, expected to be around 200 billion EGP ($28.7 billion,) by the end of the current fiscal year.
In an attempt to control a major budget deficit, the cabinet approved early this month a 5 percent temporary surtax on those who earn more than 1 million EGP annually. The government plans to apply the tax starting next year.
The military-backed interim government also announced it would apply some reform measures, including widening the tax base, increasing investments and rationing the state subsidy program.
As Egypt has already started to speed up procedures for reducing energy subsidies and expanding the tax base, some agreement with the IMF could be reached when talks are resumed.
On the sidelines of his participation in the semi-annual events of the IMF and World Bank held in Washington last month, Minister of Finance Hani Kadry said “Speeding up procedures for reducing fuel subsidies and expanding the tax base are among the key financial reforms targeted by the Egyptian government.”
He told the Wall Street Journal that Egypt may consider resuming negotiations with the IMF to obtain financial aid, “but only after the presidential elections.”
Meanwhile, the deficit could reach 14-14.5 percent of GDP by the end of next fiscal year, totaling 340 billion EGP to 350 billion EGP, if economic reforms are not applied, Kadry said in a Cabinet meeting April 28.
In an April report, the IMF projected Egypt’s economy to grow by only 2.3 percent and 4.1 percent in 2014 and 2015, respectively, citing “political uncertainty.”
“Economic growth in Egypt is expected to be broadly the same in 2013, as political uncertainty will continue to weigh on tourism and foreign direct investment, notwithstanding the fiscal stimulus supported by GCC financing,” the IMF stated in its World Economic Outlook report. Egypt’s economy grew by 2.1 percent in 2013.
The IMF added that “large imbalances will persist unless structural reforms and fiscal consolidation are initiated.” The report also predicted economic growth to reach 4 percent in 2019.