Egypt’s IMF talks in Cairo end without agreement on loan

Dubai: Egypt’s negotiations with the International Monetary Fund (IMF) in Cairo ended without a loan agreement, halting a bond rally, as the country seeks funds to shore up an economy weakened by mounting unrest.

add_main_imageEgyptian officials, who had expressed hopes of a deal during the IMF team’s two-week visit, said talks will resume in Washington. “They’re moving in a very positive manner and we’re expecting to end in an agreement soon,” planning minister Ashraf El-Arabi said in a television interview late Monday. The IMF said in an e-mail that discussions with the authorities will continue, without giving a date.

Egypt’s Eurobonds fell, halting a rally that coincided with the Fund’s visit. The yield on debt due in 2020 rose 11 basis points to 7.13% at 11am local time, after dropping more than 160 points since talks resumed on 3 April.NextMAds

The negotiations have repeatedly stalled amid political bickering and unrest that made it harder to implement IMF-backed changes like tax increases and subsidy cuts. President Mohamed Mursi’s government is seeking to trim a budget gap without adding to the discontent of a population that’s yet to see an improvement in their daily lives since the 2011 uprising against his predecessor Hosni Mubarak.

‘Hard place’

“The government is between a rock and a hard place, as it does not want to implement needed economic reform,” John Sfakianakis, chief investment strategist at MASIC, a Riyadh- based investment company, said in e-mailed comments. “But it is also in desperate need of liquidity. Arab aid, especially from Qatar, provides some breathing space, but that is not enough to sustain the deep financing gap Egypt is facing.”

Egypt last week secured pledges of an additional $3 billion from Qatar, on top of $5 billion it had already provided, while Libya announced a $2 billion deposit in Egypt’s central bank.

Still, those funds are only “pain relief, if they’re not combined with structural adjustment in the balance of payments,” El-Arabi told the CBC satellite channel.

“The concern with the funds from Qatar and Libya is that it would be seen as reducing the urgency of an IMF deal,” said Liz Martins, Dubai-based senior economist at HSBC Middle East Ltd. “The fact that yet another IMF visit has gone by without a deal does suggest this to some degree.”sixthMAds

Egypt started talks with the IMF two years ago, and says it needs the IMF loan to restore investor confidence and unlock additional financing.

‘Sustained recovery’

Foreign reserves have plunged more than 60% below their December 2010 levels, reaching $13.4 billion last month, equivalent to less than three months of imports. The Egyptian pound has slid more than 10% since late December, when the central bank introduced daily auctions to ration the supply of dollars.

The IMF said on Monday that Egypt has taken valuable first steps to address energy subsidies. “They intend to build on these steps with further actions to address, in a socially balanced way, the country’s fiscal and balance of payments deficits, and create conditions for a sustained recovery of the economy,” it said.

The government’s move this month to raise the price of butane gas canisters for households and businesses triggered outrage, and Egyptians complain of a diesel shortage that has doubled prices on the black market.

Mursi’s government was already beset by criticism from secularists, youth activists, minority Christians and some fellow Islamists, over issues including his handling of the economy and failure to provide security or prevent frequently violent protests.

The IMF has said Egypt’s economic programme needs broad public support. Its team met a range of political groups during the Cairo visit, with responses ranging from tepid to outright rejection of the proposed programme. BLOOMBERG