Egypt Sees IMF Accord Crucial to Economic Rebound, Minister Says

Egypt’s interim government considers a loan agreement with the International Monetary Fund an “essential” part of efforts to revive economic growth, Planning Minister Ashraf El-Arabi said.

The timing of a resumption of talks on a $4.8 billion loan is still under discussion, El-Arabi said in a telephone interview today. The government is assessing Egypt’s financing needs based on the latest economic data, he said.

El-Arabi’s remarks come a day after Egypt’s government said it was told by visiting Deputy Secretary of State William Burns that the U.S., the IMF’s largest shareholder, supports the resumption of talks. Egypt’s negotiations with the IMF have been repeatedly disrupted since 2011, and have been on hold since the army deposed President Mohamed Mursi on July 3 following nationwide protests against his one-year rule.

“As an economic group within the government, there is an agreement that reaching an IMF agreement is part of the solution, an essential part,” El-Arabi said. “There is no decision on when to start the talks. What’s more important is to start fixing the structural problems in the economy.”

The interim government led by Prime Minister Hazem El Beblawi has said its priority will be to revive the economy, stuck in the worst slowdown in two decades. The political unrest that deterred investors and tourists has intensified since Mursi’s overthrow, with dozens of people, mostly supporters of the Islamist leader, killed in clashes with security forces.

Aid Pledges

Gross domestic product may have expanded about 2 percent in the fiscal year that ended in June, El-Arabi said, basing his estimate on data covering the first 11 months of that period. The budget deficit may have widened to more than 13 percent of economic output, he said. The median estimate of 11 analysts on Bloomberg is for a shortfall at 12 percent of GDP.

Egypt has received at least $5 billion in aid from the United Arab Emirates and Saudi Arabia since Mursi’s ouster, as part of a $12 billion pledge from the two countries as well as Kuwait. The government says it will avoid resorting to austerity measures as it seeks to revive growth. The central bank unexpectedly cut its benchmark interest rate by 50 basis points, or 0.5 of a percentage point, last week, the first reduction since 2009.

“They’ll save money where they can, but after years of heavy economic losses and with the political environment still so fraught, I don’t see there being an appetite for austerity,” said Simon Williams, chief Middle East and North Africa economist at HSBC Holdings Plc in Dubai. The government’s focus “has to be stabilization and restoring confidence,” he said.

El Beblawi discussed development projects with a visiting delegation from the U.A.E., including low-income housing and a tunnel under the Suez Canal, according to a cabinet statement.

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