IMF coming to Egypt with $4.8 billion loan proposition

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Egyptian Foreign Minister Nabil El-Araby greets Christine Lagarde, the French Finance Minister and front-runner to take the helm at the International Monetary Fund, after their meeting in Cairo Egypt, Sunday, June 12, 2011, Legarde is on a world tour to support her bid to be the next managing director of the IMF. Photo – Amr Nabil/AP

An International Monetary Fund delegation, headed by Christine Lagarde, will visit Egypt to discuss the possibility of a bigger-than-expected $4.8 billion loan, its finance minister said on Thursday.

The IMF confirmed in a statement that Lagarde would be present and said the delegation’s visit would start on 22 August.

“Her visit is a reflection of the IMF’s continuous commitment to support Egypt and its people during this historic period of transition,” it said.

During 18 months of political turmoil since the overthrow of dictator Hosni Mubarak, successive Egyptian governments negotiated with the IMF to secure emergency funding that various officials had put at $3.2 billion.

Egypt’s fiscal and balance of payment problems have worsened ever since and the country is working hard to reach a deal with its international lenders. An exodus of foreign investors in the wake of the turmoil left local banks shouldering almost all short-term lending to the state, sending its borrowing costs to unsustainable highs.

“We will discuss, in the negotiations we are to carry out with the IMF, increasing the loan to $4.8 billion,” finance minister Mumtaz al-Saeed told reporters in Cairo, adding that he asked the United States on Tuesday for a $500 million grant to support the state budget.

An IMF deal would also help Egypt add credibility to economic reforms needed to restore investor confidence.

Foreign reserves have fallen to well under half levels seen before last year’s popular uprising against Mubarak and investors’ reluctance to return is born partly of fears that a sharp currency devaluation could wipe out any returns.

Egypt’s 2012-13 budget sees a 12.5% rise in the deficit.

The deficit would represent 7.9% of gross domestic product (GDP), down from 8.2% a year earlier, although most economists forecast lower GDP growth than the government’s estimate of 4-4.5%.

Tax receipts have suffered from a weak economy and the previous government boosted spending to meet popular demands for better living standards after Mubarak’s overthrow.

Aid promised by foreign donors last year was largely absent until June, when funds arrived from Saudi Arabia.

Saudi transferred $1.5 billion as direct budget support, approved $430 million in project aid and said it would allow Cairo to use a $750 million credit line to import oil products.

Saeed said this week that Qatar should place the first $500 million tranche of a $2 billion deposit in the central bank within a week.

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