The government is scurrying to prepare for an International Monetary Fund (IMF) mission early next month. This week it revealed, with very little detail, the economic programme it plans to present to the IMF to get it to approve a $4.8 billion loan request. The reform programme aims at tightening the budget deficit and increasing reserves in addition to levying a set of new taxes. And although fuel subsidies were not mentioned in the programme, the government had earlier announced steps in that regard. Twenty per cent of the state budget is allocated to energy subsidies alone and tackling the issue is seen as crucial to securing the IMF loan. Egypt's Finance Minister Al-Morsi Hegazi said Tuesday that the programme will be submitted to parliament in two days after which it will be sent to the IMF. Hegazi added that a mission from the IMF will be expected to arrive in Cairo in 10 days. The mission will discuss with the Egyptian government a request for the $4.8 billion loan. The loan was waiting for the approval of the IMF board three months ago when the president's constitutional declaration and a set of announced tax reforms ignited a firestorm of street protests. The plan aims at tightening the budget deficit to 10.9 per cent together with accumulating foreign currency reserves to $19 billion by end of June 2013 and $22.5 billion the following year. It also levies a tax of 0.1 per cent on stock market transactions and a standardised corporate tax of 25 per cent. According to the programme, the government decided to limit the sales tax hike to only six goods — alcoholic and non-alcoholic beverages, cigarettes, steel, cement and telecom services. A previous December 2012 decision to raise taxes on 50 items had been put on hold following a social uproar against it. The suggested taxes back then had included taxes on soft drinks and coffee beans. “The plan is both ambitious and difficult to implement amid the current political and economic situations,” Mona Mansour, co-head of research at CI Capital. “The government wants to show the IMF they have a programme that can secure them the loan.” Mohamed Seddik, head of research at Prime Holding agrees. Seddik believes that with the current climate, achieving the targets set out in the plan is “highly unlikely”. In fact he said that any program that this government draws up is unreliable because it is temporary. This government will depart once the parliamentary elections conclude, he pointed out. “They should not set targets beyond five months.” The plan in its current status, according to Mansour, is a tuned-down version of the previously leaked details of the programme. “Lowering the income tax rate and limiting the number of items that will witness a sales tax increase to only six is a political manoeuvre to absorb social anger.” However, Seddik said that any increase in input costs will be passed on to end customers, which definitely will not calm down the public. January inflation figures show that it increased to 6.3 compared to 4.7 in December, its highest rate in two years. As for the target to increase reserves to $19 billion, Mansour said it was far fetched but based on the assumption that Egypt will receive the IMF loan and perhaps other promised foreign assistance that is yet to be revealed. Qatar has extended $2.5 billion in loans to Egypt in recent months but that did not prevent reserves from sliding to $13.6 billion in January compared to $36 billion in January 2011. Mansour told Al-Ahram Weekly that although the government increased the targeted budget deficit to 10.9 per cent from the previous target of 10.4 per cent — which it found hard to achieve — “it is still not clear how they will tighten the deficit to this level in the short term.” Some observers believe the sought-after IMF loan will help reinstate confidence in the Egyptian economy, thus attracting much needed investment. However, Seddik is not very confident that the IMF would approve the loan. “The worsening political and economic environment will make it very hard for the IMF to dispense the loan.” Until the paper went to press, questions sent by the Weekly via e-mail to the IMF concerning details of the expected mission, had not been replied to. Seddik pointed out that Egypt should not pin much hope on the effect that the loan could have in helping the economy pick up. “It can just temporarily support a budget deficit,” he said, adding that “no country can live on donations for long. The economy will not pick up unless production, tourism and foreign direct investments return.” Reported by Niveen Wahish and Sherine Abdel-Razek
