EFG-Hermes Sees IMF Egypt Loan as Gulf Backers Seek Partners

Egypt will probably restart loan talks with the International Monetary Fund as Gulf Arab allies say they need partners to help revive the struggling economy, according to the country’s biggest investment bank.

Egypt needs between $10 billion to $15 billion in the fiscal year starting next month to help finance the budget deficit and stabilize foreign currency reserves that have fallen 50 percent since 2011, said Mohamed Abu Basha, Cairo-based economist at EFG-Hermes Holding SAE. While most of the money will likely come from Gulf allies such as Saudi Arabia and the United Arab Emirates, a forecast “funding gap for the next two to three years” will require broader sources of assistance, he said.

“Going to the IMF is a matter of when, not if,” Abu Basha said in a phone interview. “The timing isn’t yet clear but it probably won’t be before the second half of the fiscal year.”

Saudi Arabia and the U.A.E. are already seeking to bring in other donors to help Abdel-Fattah El-Sisi, the former military chief who won last month’s presidential election, revive an economy battered by three years of unrest. Saudi Arabia called for an international aid conference, while the U.A.E. said it wants to enlist the help of institutions such as the IMF and the World Bank, urging both to show flexibility in dealing with the North African country.

Egypt has repeatedly engaged in loan talks with the IMF after the 2011 uprising that toppled Hosni Mubarak, without concluding a deal. Since the July ouster of President Mohamed Mursi, Saudi Arabia, U.A.E. and Kuwait have pledged about $15 billion in aid. The U.A.E. said it was working with Egypt on a plan to revive the economy.

Budget Deficit

Egypt’s budget deficit is expected to narrow to between 11 percent and 11.5 percent of gross domestic product in the fiscal year ending this month, outgoing Finance Minister Hany Kadry said in May. The shortfall was about 14 percent the previous year.

Kadry said in May that there would be no change in the country’s current relations with the IMF before upcoming parliamentary elections and the formation of a new government. Philippe Dauba-Pantanacce, senior economist for the Middle East and Turkey at Standard Chartered Bank, said the Gulf money “could diminish the incentives to rush to an IMF deal that would come with” conditions.

Egyptian authorities, though, have already pledged to pursue measures such as cutting energy subsidies to shore up public finances and spare money for investments. They also won IMF support for a proposed tax on the profit of equities investors. Egypt’s benchmark EGX 30 Index for stocks rose 0.4 percent today in Cairo.

Former Finance Minister Samir Radwan, who was part of an earlier government push to secure an agreement with the fund, said an Egypt-IMF deal wouldn’t be just about money.

“No matter how much money we are getting from the Gulf, I think we still need to sign this agreement to show that we have a set of reforms which will set the Egyptian economy on the right road to recover,” he said by phone. “We may be going back to the IMF sooner than people think.”

To contact the reporters on this story: Mariam Fam in Cairo at mfam1@bloomberg.net; Alaa Shahine in Dubai at asalha@bloomberg.net

To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net Mark Williams, Shaji Mathew

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