IMF mission now holding talks in Egypt

CAIRO - Reuters

Egyptian Prime Minister Kamal Ganzouri. REUTERS photo

Egypt's negotiations for financial assistance from the International Monetary Fund (IMF) will take two to three months as the two sides work out technical details and how to bring other donors on board, an IMF director said on Tuesday.

Egypt, which on Monday began negotiating $3.2 billion in support from the IMF, said it wants the aid as soon as possible to help it to plug budget and balance of payments deficits pushed wider by almost a year of political and economic turmoil.

Egypt says it hopes an agreement will be finalised within a few weeks.

Much of Egypt's economy has been on hold since its military-backed government rejected an IMF offer in June of $3 billion in finance.

Investment has largely dried up as a slide in foreign reserves threatens a currency crisis and as the policies of a democratically-elected government due to replace the army remain uncertain.

In an interview on Tuesday, IMF regional director Masood Ahmed said the IMF would want any agreement to be part of a package that included support from other countries and donors who were likely to contribute to Egypt over the next year.

"For me, the difference in doing it in six weeks or 10 weeks is less important than what your next announcement is about," said Ahmed, who arrived in Cairo on Sunday to open negotiations on the 18-month financing package sought by Egypt.

An IMF technical team will remain in Egypt for up to 10 days to work out the details of any accord, then return for further talks at the end of January.

Analysts say Egypt is in desperate need of international support to avert a financial crisis, but any agreement is unlikely to prevent a drop in its currency or see any quick revival of the investment needed to fuel growth.
 
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Ahmed said potential investors and donors were mainly looking for a credible economic programme with broad political support and that a comprehensive package would serve to reinforce confidence in Egypt.

The fact Egypt had begun a process toward an IMF agreement was already serving to reinforce such confidence, he said.

Cairo has received in-principle offers of budgetary support and other aid totalling well over $10 billion from Qatar, Saudi Arabia, the United Arab Emirates and other countries, but actual aid flows have been slow to arrive.

Economists say donors are wary of sending funds to Egypt until it takes steps to get its budget and balance of payments deficits under control.

Ahmed said the IMF wanted to see a programme that would work as a whole, rather than focusing on individual measures.

"If you have a set of numbers that manifestly don't add up, then I don't think we're doing anyone a favour by saying that 'this is a great programme', because it will fall apart within months," he told Reuters.

"Egypt is now losing $2-3 billion of reserves a month. It's important to put in place a programme that will generate confidence and stem that loss."

A key benefit from any international financing made available under an agreement is that it would allow the government to reduce its dependence on domestic borrowing, which has sent local interest rates soaring.

The interest rate on 1-year domestic treasury bills has surged to over 15.6 percent from 10.4 percent just before the uprising that toppled President Hosni Mubarak last February.

Ahmed said the government was rolling over about $100 billion a year in domestic debt. He estimated that for every one percent decrease in interest rates on domestic debt the government could save as much as $1 billion each year.