CAIRO—Egypt formally asked the International Monetary Fund (IMF) for a $4.8-billion loan, seeking a desperately needed rescue package for its faltering economy, but raising the possibility of painful restructuring in a country still reeling from its revolution 18 months ago.
The loan deal, which Egypt says it will reach by the end of the year, presents a major test to the country’s first ever freely elected party.
The IMF has avoided making specific conditions for a loan but it seeks a cohesive government plan for restarting economic growth and reducing a deficit that has grown to $23.6 billion, some 8.7 per cent of gross domestic product.
A key part of that will likely be reducing subsidies that suck up a third of the government budget every year. Touching those subsidies, however, could bring social upheaval, since they keep commodities like fuel and bread cheap for a population of around 82 million, some 40 per cent of whom live near or below the poverty line.
“The government will have to take urgent measures, at the top of them cutting energy subsidies,” said Mohammed Abu Basha, a Cairo-based economist at investment bank EFG-Hermes Holding SAE. The biggest subsidies are those on fuel—including gasoline and cooking gas—costing the government some $16 billion a year.
The government also faces mounting demands to increase salaries for the millions of civil servants and public sector workers and boost social spending. Infrastructure has crumbled, with electricity and water outages pervasive this summer.
Egypt’s hope is that the IMF package—its first loan from the organization in nearly 20 years—would provide not only a cash boost but, more importantly, a seal of approval that will bring back international investment.
The IMF loan will not be enough to cover all Egypt’s financing needs. IMF officials said earlier that the country needs a total of $10 billion to $12 billion in outside funding over the next 12 to 15 months.
Qatar has delivered around $500 million of $2 billion it has promised Egypt. Saudi Arabia promised to deposit $1.5 billion in Egypt’s Central Bank. But other aid packages from the European Union, the oil-rich Arab Gulf states and other sources will heavily depend on Cairo’s ability to secure the IMF loan.