Egyptians Brace for Austerity as Govt. Seeks IMF Loan
Wednesday, representatives from the International Monetary Fund (IMF) will arrive in Cairo to enter into new rounds of negotiations, regarding a proposed $4bn loan to the country.
Egypt, which has continued to struggle with social and economic difficulties since the political unrest of 2011 that resulted in the ousting of former President Hosni Mubarak, is seeking the IMF aid in the hopes of bolstering its rapidly deteriorating economy.
Egypt’s current President Mohammed Morsi is reported to have initiated negotiations with IMF in November. However, he was forced to delay finalization of any potential initial deals until December, due to political divisions throughout the country over the extent of his executive powers. In a statement to reporters, cabinet spokesperson Alaa al-Hadidy ruled out the possibility of any emergency loans, in lieu of talks with the IMF, stating that despite its financial strains, Egypt would not experience a “crisis” in relation to the importing of essential goods.
Additional loan and aid packages from the World Bank and neighboring countries, which would require first the finalization of an IMF deal, could potentially reach as high as $8bn. This injection of cash comes at a difficult time, with the Egyptian pound having lost 9% of its value since 2012 and unemployment throughout the country holding at 20%. Tourism which traditionally has made up approximately 12% of the Egyptian GDP, has sharply declined amidst the political strife which even now continues to wrack the country.
When coupled with fuel shortages, power outages and extended lines at petrol stations, considerable angst has rippled throughout the country, as the government now eyes new austerity plans as part of the IMF loan package. Fuel subsidies which presently total $20bn annually, are expected to be first on the chopping block.
Presently, Egyptian fuel subsidies for diesel fuel are used to power a majority of irrigation pumps throughout the country. These subsidies, totaling $7bn annually, are allowing Egyptians to purchase the oil for mere cents, as opposed to the average two dollars per liter paid in neighboring countries. Though the subsidies have helped somewhat in stabilizing Egypt’s agricultural sectors and specifically wheat production (Egypt is the world’s top importer of wheat), their affects on the overall national deficit have been devastating.
The negotiations come at a time when many are questioning the efficacy of loan induced austerity, given the often counterproductive and subjugating provisions associated with the deals of this variety. In December, at the height of the last round of talks with IMF, economic development researcher Mohamed El Dahshan acknowledged the need for changes to Egyptian spending and bureaucracy, but expressed worries that increased economic emphasis on Egypt’s plight might further overshadow deep rooted social issues stating,
“There is the need for some serious and probably painful reforms…On the other hand, you have a people that has been suffering for the past decade from a policy that has been very pro-market, without any social aspect.”
Concern over the deal and proposed conditions extends beyond the political arena as well. Egypt’s leading Islamic authority Al-Azhar is coming to odds with the President Morsi’s Muslim Brotherhood over the terms and acceptance of the plan. The Muslim Brotherhood, as well as many members of Morsi’s own government are attempting to pressure Al-Azhar to agree to the deal.
Although not run by Sharia Law, Egypt’s new constitution requires clerical oversight by Al-Azhar in regards to official matters. However, many in favor of the IMF deal point out that the approval is not a codified requirement. The IMF loan, as well as those which could be offered subsequently by the World Bank and others, comes into conflict with Islamic code as Sharia Law does not allow interest to be charged or paid on the principle.
(photo by REUTERS/Asmaa Waguih )