Egypt can’t emerge from its economic “crisis” without reaching an accord with the International Monetary Fund, and plans to invite fund officials to return in a matter of days, Planning and Investment Minister Ashraf El-Arabi said today.
Foreign reserves have dropped below three months import cover, a decline that “disturbs” officials, El-Arabi told reporters in Cairo. He said Egypt’s economy needs an injection “of new blood” from outside.
The warning was the strongest indication yet of the problems facing President Mohamed Mursi as he looks to revive an economy growing at its slowest pace in two decades, with foreign reserves more than 60 percent below their end-2010 levels. Anger over government policies has sparked protests that have flared into violence, with more than 50 killed last month.
Egyptian officials see the IMF loan, which has been repeatedly delayed, as key to unlocking other donor aid. Officials expect the deficit this year will come in at 180 billion pounds ($26.7 billion), or 10 percent to 10.5 percent of gross domestic product, El-Arabi said.
El-Arabi said the government would invite the fund to return within a week, and said a deal could be struck before parliamentary elections whose date has yet to be fixed. The comments indicated the government was in the final stages of the economic program that it must present as part of the talks.
The political impasse has compounded the economic woes. Egypt’s five-year credit default swaps climbed 37 basis points today to 575 basis points -- their highest level since August, according to data provider CMA.
The challenge for officials under an IMF program would be to control spending, while not stoking more unrest.
Prime Minister Hisham Qandil has said any reforms will not target the neediest, amid concern that cutting the subsidies will result in a spike in prices of staple goods.
Mursi plans to reduce to six from 25 the number of goods that will be subject to a sales tax increase, the independent al-Shorouk newspaper reported today, citing Tax Authority chief Mamdouh Omar. .
“The government took into account higher sales tax on goods that won’t affect citizens, keeping in mind the social dimension” of the reforms, Omar was quoted as saying. Backlash over an earlier decision by Mursi to raise sales tax on a range of goods in December forced him to back down a day later.