Egypt's $4.8 billion International Monetary Fund (IMF) loan deal looks set to be completed by the end of the year. At the moment (November 2012), an IMF technical team is in Cairo hammering out the final details in a negotiating process described as “extremely positive”. Egypt's relationship with the IMF, however, is nothing new. It's a fractious relationship going back decades, to the Hosni Mubarak era.
Mubarak, a former air chief marshal in the Egyptian air force, entered politics and was appointed vice-president of the country in 1975.
He became Egypt's fourth president in 1981 following the assassination of President Anwar El Sadat. Within four years of coming to power, dire warnings were issued by the IMF over Egypt's faltering economy and the country's difficulty in servicing foreign debts totaling $31 billion.
Talks began late in 1986 between Egypt and the IMF over a $327 million loan deal. Months of delay followed because of disagreements but a deal was eventually struck in May 1987. More than a year later, Egypt was knocking at the IMF door again looking for further money. In 1991, the IMF approved a $372 million standby loan in return for structural reform of the economy. Over the next few years, and under pressure from the IMF, the country followed through with a privatization plan which raised $1.25 billion. Then in 1998, Egypt announced it no longer needed IMF help.
Fast-forward to January 2011 and Egypt's uprising which resulted in the overthrow of the Mubarak government. Some three months later, talks began with the IMF over a $3-4 billion loan. But they came to nothing when Egypt pulled out partly due to public criticism.
Towards the end of the year, however, representatives of the IMF were invited back for discussions. In March 2012, Egypt submitted another plan but wrangling between political parties saw an IMF delegation leave Cairo without securing any agreement. In August, Egypt formally asked for the $4.8 billion loan.
IMF managing director Christine Lagarde, at the end of a visit to Cairo, said, “Egypt faces considerable challenges, including the need to restart growth and reduce budget and balance of payments deficits. Getting the country's economy back on track and raising the living standards for all will not be an easy task. The Egyptian people have legitimate expectations for a better life and greater social justice. We at the IMF, stand ready to help.”
An IMF report published in October said while the weak global environment weighed negatively on Egypt's recovery prospects, the main risks to the outlook were domestic in nature. “In particular, prolonged political uncertainty, a worsening of the security situation, and/or failure to put in place corrective policies would dampen confidence, delay the economic recovery, and lead to increased pressure on the pound and international reserves.
“Fiscal risks would also rise in such a scenario. Economic outcomes could exceed expectations if the political transition advances smoothly and the authorities implement a comprehensive and broadly supported economic program that addresses effectively the country’s imbalances.”
The report added, “Sustaining higher and more socially balanced growth will require policies to leverage Egypt's considerable economic potential and unleash its dynamic private sector. Creating a more transparent and competitive business environment, streamlining burdensome regulations, and improving access to financing, especially for small enterprises, should help boost economic activity and create jobs. Increasing investment in human capital and infrastructure should help provide more equal access to job and business opportunities for all sections of society.”
Check out this Egypt IMF timeline.
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