Two governmental sources close to the parties involved in negotiations between the International Monetary Fund (IMF) and Egypt over the prospective $12bn three-year loan recently revealed the topics that will serve as the focal point of negotiations in the coming days. These include setting a maximum limit for the government in terms of financing the budget's deficit through local borrowing and offering treasury bonds and bills. "The delegation requests that reliance on the local market be reduced in order to finance the deficit. This would be done gradually, beginning with the first part of the loan. However, first the deficit must be reduced by rationalising general spending and enhancing revenues," the source told Daily News Egypt. The negotiations will revolve around reducing reliance on the local market to finance the deficit from 70% down to 50% throughout the different segments of the loan. The government may borrow from foreign markets, especially since foreign debts have not yet crossed the limits as a percentage of the GDP compared to the inflated local debt. The government has already revealed its intentions to issue US dollar bonds estimated at $3bn in the international market before the end of 2016, as part of its efforts to collect $21bn to implement the economic reform programme. Egypt has depended on local banks in financing 100% of the deficit throughout the past five years, which has caused an increase of the general debt to EGP 2.2tn by the end of March 2016. The negotiations included the IMF's request to the government to disclose its plan to repay foreign obligations─besides the loan─throughout the time of the financing programme. This step aims to make sure it does not affect Egypt's ability to repay the IMF after the grace period—which is currently being negotiated as up to seven years. The sources said that the first tranche of the loan is still under negotiation. However, the second and third depend on the progress achieved by the government throughout its reform programme in the first phase. The IMF will give the government a specific and clear timetable for implementing the reform programme's economic items. According to the press release on Sunday, the Ministry of Finance said that there are no conditions coming with the IMF loan, and that the consultations revolve around the Egyptian reform programme that was approved by parliament. However, the statement said that the IMF is reviewing the procedures to ensure their effectiveness in achieving the economic goals required to stabilise Egypt's economy. The sources added that the mission called for offering the shares of some state-owned companies and banks through the stock exchange to broaden the ownership base, thereby contributing to increased depth of the Egyptian capital market, which would allow for the application of the capital gains tax, as advised by the IMF, to increase revenues. Minister of Investment Dalia Khorshid said on Sunday that work is underway in full swing to accelerate the offering of the shares of companies and banks owned by the state in the Egyptian Exchange and in international stock exchanges. Meetings have begun with leaders in the petroleum sector to examine the first list of the sector's companies eligible for the IPO. The IMF will be watching the progress of the economic indicators, specifically the development of deficit and foreign exchange reserves, as well as the Central Bank of Egypt's (CBE) domestic assets. The government is to calculate the actual money of the private funds and piece them to the state's budget in order to adjust and control the disbursement of these funds. According to sources, the mission is consulting the CBE's leaders about allowing the Egyptian pound exchange rate to move in both directions, according to the conditions of demand and supply, depending on a small portion of the reserve to intervene in critical times to adjust the market.
