Bloomberg News

Egypt Top Islamist Group May Vote Against $3.2 Billion IMF Loan

February 14, 2012

Feb. 7 (Bloomberg) -- Egypt’s Freedom and Justice Party, the country’s biggest parliamentary group, said it will vote against International Monetary Fund loans if the government fails to convince lawmakers it has no alternatives.

The government last month asked the IMF for $3.2 billion to help cut borrowing costs that have surged to a record after last year’s revolt against President Hosni Mubarak. Loan agreements require approval from the parliament, which was inaugurated last month after elections won by the Muslim Brotherhood’s Freedom and Justice Party with 47 percent of seats.

Prime Minister Kamal El-Ganzouri’s Cabinet “must present proof” that foreign borrowing is necessary, or Freedom and Justice will vote against the loan, Essam El-Erian, the party’s vice chairman, said in a phone interview from Cairo yesterday. “The government’s borrowing policy is vague,” he said. “Will we continue to depend on borrowing?”

A showdown in parliament may prolong Egypt’s search for financing to reduce borrowing costs and stem the worst decline in the central bank’s foreign-currency reserves since 2004, according to Raza Agha, London-based senior economist at the Royal Bank of Scotland Plc. The bank spent half its reserves last year, pushing the total to $18 billion in December.

“The Central Bank of Egypt doesn’t have a lot of time, given that December numbers had actually suggested an acceleration in reserve loss,” Agha said by e-mail. “Without donor support, the central bank reserves will be under tremendous pressure.”

Record Yield

The Ministry of Finance raised 31 percent less than its target in a sale of treasury bills and bonds yesterday. It paid a record average yield of 15.915 percent on nine-month bills and canceled an offering of seven-year bonds.

The yield on Egypt’s 5.75 percent dollar bond due April 2020 rose one basis point, or 0.01 percentage point, to 6.994 percent at 5:37 p.m. in Cairo.

A delegation from the IMF met with Freedom and Justice Party officials in January. Broad political support by the country’s parties for the government’s economic program would help “reduce uncertainty and boost confidence in the program’s successful implementation,” the IMF said in a Jan. 18 statement at the end of the delegation’s visit to Egypt.

The inauguration of the post-Mubarak parliament last month and the government’s IMF loan request helped the country’s benchmark stock index gain 25 percent so far this year. The measure plunged 49 percent in 2011.

‘Fragile’ Government

Egypt has had three finance ministers since the ouster of Mubarak. El-Erian praised Finance Minister Momtaz El-Saieed as an official “who knows what he’s doing.” The minister yesterday said his government is planning to raise at least $2 billion from the sale of certificates of deposits to Egyptians abroad and Islamic bonds.

El-Erian criticized other government officials, including International Cooperation Minister Fayza Aboulnaga, who is involved in the IMF talks, and said the Freedom and Justice Party is closely scrutinizing policy. “We have a very strong economic team,” he said. “When they sat down with the government they were amazed. The government’s position is fragile.”

--Editors: Ben Holland, Karl Maier.

To contact the reporter on this story: Alaa Shahine in Dubai at asalha@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net


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