CAIRO: As clashes and unrest grip Egypt, and with Tuesday looming and threatening to be an even worse continuation of the violence, the Egyptian economy is barely staying afloat. In August of this year, the Egyptian government approached the International Monetary Fund (IMF) for a loan of $4.8 billion to cover its expenses and rapidly falling reserves. On November 20, an IMF staff mission headed by the Division Chief in the Middle East and Central Asia Department, Andreas Bauer, agreed on a 22-month Stand-By-Arrangement (SAB) with the Egyptian government. Approval for the loan shall be decided by the IMF board of executives in December of this year. As with all IMF loans, certain conditions must be met in order for the loan to be approved. Although the IMF has not disclosed these in detail, Bauer claimed that: “The policies contained in the authority's program will help address Egypt's pressing economic and social challenges." He said Egypt would have to reduce “wasteful expenditure, reform" energy subsidies, and boost tax revenues. One way mentioned of boosting tax revenues is to broaden general sales tax into the Value Added Tax (VAT) commonly seen elsewhere. The program would also “help … private sector growth." Bauer also mentioned that “broad domestic and international support will be crucial." In order to get a better view on the economic situation, and the implications of the recent violence on the economy, IMF loan, and indeed the implications of the loan itself, a financial advisor, who preferred not to be named, told Bikyamasr.com the doomsday scenarios put forth in recent days may not come to fruition. The big issue at hand in relation to the IMF loan is not the funds themselves, she explained, but the confidence that it gives in the Egyptian economy. Once Egypt gains the IMF's “seal of approval", in the form of this loan, this reflects well on Egypt's (currently poor) credit rating. If this loan is approved, it will be easier for Egypt to acquire more loans elsewhere. This is made apparent by the fact that the European Union's loan to Egypt is partly conditional on the IMF loan. What the recent violence does, however, is decrease confidence in Egypt's ability to function both socially and economically. If the Egyptian government is seen to be unable to control the domestic situation, this lessens Egypt's ability to service the debt in the eyes of its creditors. Due to sharp decreases in the amount of income from foreign investment and tourism, and with companies pulling out of Egypt, reserves have plummeted since the January 25 uprising. Added to this problem is the poor performance of the Egyptian Exchange (EGX 30). Despite a 2.6 percent increase on Monday morning, the financial advisor noted that this could merely be a cosmetic increase designed to allay fears of the coming days, and that in comparison to the enormous drops in the last two years, this is nothing to get optimistic about. Indeed, the EGX 30 Index dropped from around 7,000 in 2010 to around 4,900 this month. This represents a drop of around 30 percent. She also warns against looking at the stock exchange as an indicator of the economy, saying that “The economy is in an even worse situation than the stock exchange." Consequently, Egypt's reserves have dropped to just below $15 billion, compared to $35 billion in January last year. However, the financial advisor also warns that although the IMF loan may keep the economy from going under, there will be severe negative repercussions in the everyday lives of normal Egyptians. She pointed out that when fuel costs more, so does the transportation for everything, including public transport and the cost of transporting goods. Consequently the price of almost everything will rise when subsidies are “reformed." Unfortunately, she admitted that due to the current situation, Egypt is faced with very limited choices. Although loans from countries like Turkey and Qatar are a good step, due to the lack of oppressive economic conditions on the loans, Egypt needs the IMF's “seal of approval" if it wants to be eligible for more loans abroad. Given the negative impacts of recent unrest on Egypt's economy, Bikyamasr.com asked her if the IMF might pull out of the deal. “No." She replies, “They might delay it, but I doubt they would withdraw the offer altogether." “External influence may have made it easier for Egypt to get approval for the loan so quickly." “If one looks at Egypt's credit worthiness, it's pretty bad," she remarked. She concluded that, despite there being a very small likelihood that the IMF will not proceed with the loan, a lot hinges on what will take place in the coming days and weeks, especially Tuesday's planned protests by opponents of the government. She expects that, if things go badly, the IMF may freeze the loan until the government gets a grip on the domestic situation.
