Six months after refusing a loan, is Egypt again seeking IMF help, asks Niveen Wahish Finance Minister Hazem El-Beblawi will be in Washington tomorrow for the IMF/World Bank annual meeting. Six months ago his predecessor attended the spring meetings with what appeared to be a clearer agenda. He was there to request assistance and after months of negotiation the International Monetary Fund (IMF) to approve a $3 billion loan. Egypt then turned it down. How the IMF responds to any new Egyptian request remains to be seen. "The IMF has not received a request for financial assistance from the Egyptian authorities," an IMF spokesperson told Al-Ahram Weekly, but "as with any IMF member we stand ready to support Egypt in any way the authorities deem appropriate." The spokesperson added that IMF staff are in contact with the Egyptian authorities on an ongoing basis and have provided policy advice and technical assistance. Magda Kandil, executive director of the Egyptian Centre for Economic Studies, does not expect Egypt to request an IMF loan in the current political climate. She does, however, think a request will be made following the elections when any incoming government will have secured the legitimacy to confront the public with the argument that borrowing is necessary to reorient the economy towards sustainable recovery. Kandil argues that an IMF loan may well become essential to cover the budget deficit given the steady depletion of foreign reserves in recent months and the high cost of borrowing on the domestic market. But should Egypt decide it wants a loan it is unlikely to receive funds immediately. According to one observer, who preferred to remain anonymous, in the face of deterioration in Egypt's economic outlook since the first loan request the IMF will insist on additional discussions before agreeing terms. It would want a full assessment of the situation and to reassure itself the political will is in place to ensure any loan conditions will be met. Kandil believes it was a mistake to reject the loan in the first place given Egypt's budget shortfall. Since then the government has depended on the domestic market to cover the deficit, borrowing at ever more expensive rates. Subscriptions for treasury bills from local banks have failed to meet the government's borrowing needs despite interest rates reaching almost 13 per cent. Recent data suggests that the surge in credit to the government has come at the expense of investment in the private sector. Domestic borrowing increases inflationary pressure and risks a run on the Egyptian pound. Accepting the loan from the IMF, says Kandil, would have had the double benefit of providing a seal of approval that could have boosted investors' confidence and at the same time help catalyse more international support. "Since then, economic conditions have become worse and any vision to boost private sector activity and mobilise investors' confidence, which remains negative about near-term prospects, has been absent." Amirah El-Haddad, associate professor of economics at Cairo University, agrees with Kandil's analysis. "The growth rate has fallen to around one per cent, foreign reserves have tumbled by 40 per cent since the beginning of the year and global commodity prices are increasing." All these factors, says El-Haddad, may force the government to borrow. She too believes it makes more sense to borrow from international financial institutions than rely on Egypt's banking system. Depending on the latter crowds out the private sector which results in lower production and reduces the possibility of creating more jobs, pushing Egypt into a vicious circle where lack of demand feeds a growing recession. Borrowing from international organisations, says El-Haddad, will help the government outline a realistic medium to long-term reform agenda. It would act as a self-enforcing device, inducing the government to commit to, and follow through on, a package of necessary reforms.
