Tuesday, Mar 20, 2012
--IMF technical team to discuss details of the Egyptian government's budget reform plan
--Lack of clarity in the budget proposal presented an early potential stumbling block
--IMF needs to see broader political commitment to the reform plan going forward
By Matt Bradley
Of ZAWYA DOW JONES
CAIRO (Zawya Dow Jones)--The International Monetary Fund will work with Egypt on its proposed package of fiscal reforms amid negotiations for a $3.2 billion loan to help bolster the Arab state's flagging economy, but will only sanction the facility if the government's reform plan receives broader political support, according to a senior fund official.
An IMF technical team will arrive early next week to hash out the details of the Egyptian government's budget reform plan as part of weeks-long negotiations for the loan, Masood Ahmed, director of the fund's Middle East and Central Asia Department, told Zawya Dow Jones Tuesday.
The lack of details in the Egyptian government's budget proposal presented an early potential stumbling block in the sensitive negotiations.
"It's too early to assume that those details won't be there because that's exactly what they'll be discussing with the [technical] team," Ahmed added. He is in Cairo this week to discuss the modalities of the loan.
The political arm of Egypt's powerful Muslim Brotherhood, the Freedom and Justice Party, late Monday said that while they could support a loan, Egypt's military appointed government has not been forthcoming with the details of its proposed reforms.
Ahmed said he met Monday with representatives of the FJP and will meet again today with members of parliament as well as the body's speaker, Saad Al Katatni, a leader in the Brotherhood's political party.
"They [FJP] do not yet have the details of the policies and of the numbers behind the program that was circulated in parliament," Ahmed said, adding "They want to engage in understanding those details so that they can take a view on whether they agree with them or not."
The IMF has made it clear that it will only be able to grant the loan after reaching the assent of a broad consensus of Egypt's political forces.
Last summer, Egypt's military-appointed government agreed to the loan following weeks of negotiations, only to see it rejected by the ruling military itself.
The IMF presumably hopes to avoid another embarrassing reversal.
"The measures they are proposing clearly go beyond the horizon of the current government," said Ahmed. "We need to see that there will be a commitment to the plan going forward."
The IMF has stressed that the terms of the loan agreement should be led by the Egyptian government, with the IMF imposing only "benchmarks" rather than strict conditions on the type of reforms Egypt should make.
Ahmed said the Egyptian government's plan includes revenue-raising measures, such as implementing a value added tax (VAT), financial market reforms and measures to decrease spending on Egypt's wasteful fuel subsidy program.
The IMF will seek more details on the subsidies reduction strategy--a politically sensitive topic in Egypt, he noted.
"I think it's specific enough in terms of objectives but in terms of precisely how to get to those numbers is the discussion that the technical team will need to have when they get here," Ahmed said.
The IMF loan will form a central component in the harried effort to rescue Egypt's economy from collapsing. A revolution early last year sent foreign investors fleeing, and the lack of capital inflows has badly skewed the country's balance of payments, prompting Egypt's central bank to spend billions propping up the country's currency.
With only around three months of import cover left, policymakers hope that the IMF loan could add much-needed foreign exchange and encourage other benefactors--particularly in the Arab Gulf--to offer low-cost loans and grants to further support Egypt's economy.
-By Matt Bradley, Dow Jones Newswires; +201-8875 0572, matt.bradley@dowjones.com
Copyright (c) 2012 Dow Jones & Co.
(END) Dow Jones Newswires
20-03-12 1044GMT
