Acquiring an IMF loan may be no smooth sailing for the government, writes Niveen Wahish Last year, the Supreme Council of the Armed Forces (SCAF) refused to borrow $3.2 billion from the International Monetary Fund (IMF), because it did not want to leave a legacy of debt for future generations. This year, the Egyptian government has again formally requested the same amount in loan, to try and rescue the country from a spiralling economic crisis. But it looks like parliament will not let it pass uncontested. Reactions to the idea of foreign borrowing by representatives of the Freedom and Justice Party (FJP), which holds majority seats in parliament, were lukewarm. An IMF delegation, headed by Masood Ahmed, director of the Middle East and Central Asia department, was in Cairo this week for further negotiations on the $3.2 billion loan requested in January by the government. The delegation met with a broad spectrum of personalities including FJP officials, as well as speaker of the Egyptian parliament and members of the budget, planning and economic committees. Following a meeting with the IMF delegation, Mohamed Gouda, member of the FJP's economic committee, said in a television interview that his party has no reservations against the IMF. But, he added, the party does not have enough information on the status of the economy. Neither does the FJP know whether there is a real need for the loan, nor whether the government has exhausted all its alternatives for self-financing. Gouda said the FJP does not want to increase Egypt's debt unnecessarily. The FJP, he said, has presented the government with many alternatives, but that it does not seem to want to make the effort to look into them. Instead, Gouda said, the government seems to want to revert to borrowing as the easy way out. "We do not trust the government and its ability to rationalise spending," he said. But there is more to the divide than Gouda's televised statements. In fact, for the past few weeks, parliament has said a number of times it would withdraw confidence from the government. The ideas presented by the FJP to the government include reverting to cash accumulated in what are called private funds. These funds are believed to amount to over LE40 billion. Egypt's Minister of Finance Momtaz El-Said said that Egypt's budget deficit would come to LE144 billion. He added that, by rationalising expenditure, collecting tax arrears and overcoming cigarettes and alcohol smuggling, the government would prevent the deficit from widening further. The initial target for the budget deficit had been LE134 billion. Gouda also said that the problem with the IMF loan is that it is in hard currency, so even if the interest rate is low, the risk of exchange rate fluctuations is worrisome. The IMF had said that it would lend Egypt the money at a 1.2 per cent interest rate. For their side the IMF delegation have made it clear that broad support for the programme is one of its key pillars. Its members said they have received a summary of the government programme, but the details are yet to be discussed by the technical teams. The IMF's Ahmed stressed that the measures drawn by the government in its programme need to be "credible, coherent and strong to restore investor confidence, to protect vulnerable households and to preserve macroeconomic stability in this challenging period." However, observers believe that what the government has presented so far does not meet that criteria. In fact, Gouda said the government's economic reform programme is vague, and does not show where the money will be spent or how it will be repaid. The message came across clearly to the IMF team. Ahmed told Al-Ahram Weekly that after meeting with the various parties, it is clear that there is a willingness to engage with the government in trying to flesh out the details of the programme. He also said that before these parties are in a position to commit to supporting the programme, they want to see more details. They also want to have an opportunity to contribute ideas which they hope can be reflected in the programme. "It would be much easier for us" in the IMF, he said, "to help mobilise financing if it is a programme that not only addresses the key issues but is also broadly supported." He estimated that negotiations would continue for a couple of months before a final agreement is signed. Aside from the support and credibility of the programme, Ahmed said it needs enough financial support to help provide a cushion during this period of transition. While the IMF can only provide a part of that support, it is going to help the Egyptian authorities as they seek to mobilise further support from friendly countries and from other institutions. The Egyptian government said it needs $11 billion to support its economic reform programme. Experts believe reaching an agreement with the IMF will help Egypt mobilise funding from other regional and international institutions and countries. Ahmed highlighted that Egypt's situation now is more challenging than it was last May. The international environment is also more complex, and any programme will have to take the new context into account. But the key elements of the programme remain the same, namely to restore confidence and get private activity started to create jobs. It should also narrow the gaps between government spending and government revenues, and between exports and imports, in a way that will reduce pressure on domestic borrowing. Meanwhile, vulnerable households need to be protected during this period of difficult transition.
