Egypt plans to invite an IMF mission to Cairo within a week, the government said on Thursday, flagging an early resumption of negotiations for a $4.8 billion loan as it struggles with an acute foreign currency shortage.
Planning Minister Ashraf al-Araby said foreign investment had all but dried up, predicted a huge budget deficit as food and fuel subsidy bills soar, and announced data also underlining the depth of Egypt’s crisis before elections expected in spring.
Araby said growth had been just 2.2 percent year-on-year in the December quarter, noting that strong investment was needed to reach seven percent – an annual rate economists see as needed to soak up the waves of young people entering the labor market.
He also predicted the budget deficit could hit 10 percent of annual economic output in the financial year to June, a level Egypt cannot afford without outside help.
“The Egyptian economy is recovering extremely slowly due to the security and political situation,” Araby’s ministry said in a statement.
Analysts had expected the government of President Mohammed Mursi to try to delay a deal with the International Monetary Fund until after the parliamentary elections, as the loan’s terms will demand highly unpopular austerity measures.
However, Araby predicted rapid movement. “God willing, we expect to invite the IMF delegation within days,” he told a news conference. Asked to be more specific, he said: “Within days, no more than a week.”
Egypt’s upper house of parliament adopted a revised electoral law on Thursday, clearing the way for Mursi to call the lower house polls expected to be held in April or May.
Egyptians are angry as the crisis drags ever more of them into poverty. Cairo reached an initial agreement with the IMF on the loan in November but postponed ratification the next month due to violence on the streets.
This followed Mursi’s move to expand his powers and push through a new constitution seen by opponents as favoring his backers in the Muslim Brotherhood and more hardline parties.
Araby announced foreign investment in Egypt was dire in the six months to the end of December – the first half of Egypt’s financial year.
“We had almost an absence of new direct foreign investments during the first half of the year,” he said.
Pound has tumbled versus dollar
Egypt’s pound has tumbled 8 percent against the dollar this year as its international reserves fell to $13.6 billion, less than the $15 billion needed to cover just three months’ imports.
This drop has inflated the budget deficit by forcing up the cost of subsidizing energy and food staples, such as bread.
The government announced new fuel prices for many sectors of the economy on Tuesday which industry sources said were 50percent higher than previous levels, drawing protests by factory owners affected by the increase.
Private industry and individuals are struggling to borrow or get access to dwindling supplies of dollars.
Mahdi Ibrahim, who runs an import-export business with Brazil, expressed anger about problems in getting hold of even relatively small sums in dollars – difficulties which are forcing businesses to turn to the black market for funds.
“I have pulled all my money out of the bank because of the restrictions on my ability as a client to buy dollars or transfer hard currency abroad. I have business to take care of abroad,” he told Reuters.