Bloomberg News

Egypt IMF Bid Resumes as Tensions Mount Over Prosecutor

April 04, 2013

Egypt pushed ahead with talks on an International Monetary Fund loan, while the presidency dug in its heels in a dispute over the country’s top prosecutor.

Planning Minister Asharf El-Arabi said Egypt would reach a final agreement with the IMF within the coming two weeks, after applying for a $4.8 billion loan, the state-run Middle East News Agency reported, citing an interview with him on Radio Sawa.

Yesterday, presidency spokesman Omar Amer rebuffed opposition demands that Prosecutor General Talaat Abdullah be removed from office after a court on March 27 annulled President Mohamed Mursi’s decision to hire him, according to Ahram Gate.

Disputes over the prosecutor and the IMF loan are adding to the political turmoil that persists in Egypt two years after the uprising that ousted Hosni Mubarak. Protests are a daily occurrence, while the economy is growing at its slowest pace in two decades. The pound has plunged and foreign-exchange reserves are 60 percent below their December 2010 levels.

Opposition groups have planned protests against Mursi for April 6. Others called on the IMF, whose team arrived in Cairo yesterday, to go home, saying the Washington-based lender would compound Egypt’s troubles. The government “promised us a renaissance project, we found increases in gas, electricity and water bills, price hikes, a security vacuum,” the April 6 youth group, which initially had backed Mursi, said on Facebook.

Overhaul Plans

The government has drafted an economic program including tax increases to back its application for a $4.8 billion IMF loan. It warned that the budget deficit could miss its target of 10.9 percent of gross domestic product for the current fiscal year if the measures are not implemented. El-Arabi said legislators are discussing some changes the government has made to the plan, related to tax.

Egypt’s external financing needs for fiscal year 2014 could be as high as $20 billion, Raza Agha, VTB Capital Plc’s chief Middle East and Africa economist, said in an e-mail. It’s likely to get only between $8 billion and $10.5 billion from sources other than the IMF, he said.

“This suggests that Egypt needs a much bigger program than the $4.8 billion negotiated earlier,” Agha said.

El-Arabi said officials are studying the financing gap. He denied that Egypt had requested an increase in the IMF loan.

The government has been struggling to deal with a growing budget deficit, raising prices for subsidized butane canisters used in households and businesses as part of an effort to trim the subsidy bill that eats up more than 25 percent of its spending. It has also moved to limit the drop in reserves --down to $13.5 billion in February -- through foreign currency auctions that restrict the amount of dollars available. The pound’s value has dropped 9.2 percent since the end of December.

No IMF

The economic plan submitted to the IMF calls for cost- cutting measures that may carry a political price at a time when inflation is climbing.

“We reject your visit, your loan and your anti-poor prescription,” the Popular Current, a secular party that’s part of the opposition National Salvation Front bloc, said in a statement to the IMF.

Separately, former presidential candidate Khaled Ali filed a lawsuit with the prosecutor’s office against Mursi, Prime Minister Hisham Qandil, the finance minister and two others over the IMF loan request, according to a statement by the Egyptian Center for Economic and Social Rights, which he heads. The suit accuses them of trying to sidestep parliamentary approval for the loan.

U.S. Concerns

The dispute around Prosecutor General Abdullah, coupled with authorities’ decision to issue an arrest warrant for Bassem Youssef, a comedian known as Egypt’s Jon Stewart, has been the latest catalyst for political strife.

The warrant for Youssef came days after Mursi issued a vague warning about potentially having to act to stop spiraling unrest. Compounding tensions is a lack of clarity about parliamentary elections that were due this month before a court suspended that timeline.

The U.S. has “concerns about the direction that Egypt appears to be moving,” Secretary of State John Kerry said April 2.

The tensions have raised doubts among some economists and analysts such as Michael Hanna of The Century Foundation about whether the IMF deal would be concluded before the vote. Amer, the presidency’s spokesman, said the two were in no way linked. Mursi has said the new election date could be in October.

“It’s a deal that will involve some social dislocation,” Hanna, a senior fellow at the think tank, said by phone from Washington. “Without some political consensus, which isn’t on the horizon, I find it hard to believe a deal is possible.”

To contact the reporters on this story: Tarek El-Tablawy in Cairo at teltablawy@bloomberg.net; Salma El Wardany in Cairo at selwardany@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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