Egypt bids for £3bn IMF rescue package

Egyptian flagEgypt has formally asked the International Monetary Fund for a 4.8 billion dollar (£3.02 billion) loan, seeking a desperately needed rescue package for its faltering economy but raising the possibility of painful restructuring in a country still reeling since its revolution more than 18 months ago.

The loan deal, which Egypt says it will reach by the end of the year, presents a major test to the Muslim Brotherhood-rooted president, Mohammed Morsi, the country's first freely elected leader - brought to power after the fall of Hosni Mubarak.
The IMF has avoided making specific conditions for a loan but it seeks a cohesive government plan for restarting economic growth and reducing a deficit that has grown to 23.6 billion dollars (£14.9 billion), some 8.7% of gross domestic product.

A key part of that is likely to be reducing subsidies that take up a third of the government budget every year.
Touching those subsidies, however, could bring social upheaval, since they keep commodities like fuel and bread cheap for a population of around 82 million, some 40% of whom live near or below the poverty line.

"The government will have to take urgent measures, at the top of them cutting energy subsidies," said Mohammed Abu Basha, a Cairo-based economist at investment bank EFG-Hermes Holding SAE. The biggest subsidies are those on fuel - including petrol and cooking gas - costing the government some 16 billion dollars (£10 billion) a year.

Egypt's upheaval since the 18-day uprising that led to Mubarak's ousting on February 11 2011 has pushed its economy toward the brink.

Amid near constant instability since, foreign investment has dried up. Revenues from tourism - one of the country's biggest money makers and employers - fell 30% to 9 billion dollars (£6.67 billion) in 2011 and the industry is only making a meagre recovery.

Meanwhile, the government has been burning through its foreign currency reserves, which have plummeted by more than half, to prop up the Egyptian pound and prevent a devaluation that could spur inflation.

The government also faces mounting demands to increase salaries for the millions of civil servants and public sector workers and boost social spending. Infrastructure has crumbled, with electricity and water outages pervasive this summer, bringing angry complaints, some directed at Morsi.
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