Egypt gains long-awaited relief for its struggling economy
After two years of negotiations, the Egyptian government has reached an agreement with the International Monetary Fund for a standby credit arrangement, promising substantial relief for the cash-strapped Egyptian economy. The IMF decided on Friday to grant $325 million to Egypt over an 18-month period. This represents a clear victory for President Hosni Mubarak in his struggle to get international credit at conditions politically acceptable for this volatile country.
In the long drawn-out negotiations, the Mubarak government resisted requests for harsh austerity measures and stiff reductions of food subsidies that could have triggered mass riots, such as those President Anwar Sadat faced in 1977. Most of Egypt's population is living at subsistence level and is unwilling to sacrifice on food.
The agreement with the IMF commits Egypt to use fiscal and monetary measures to achieve an annual reduction in the budget deficit. The government says it is committed to increases in energy prices, currently subsidized, to credit ceilings, and to raising revenues through more efficient tax collection. It also plans to institute a free market for foreign currency.
But there has been no promise to reduce the $2 billion spent annually on subsidizing food and other commodities.
``Our only commitment is to the people of Egypt and to continuing streamlining of government expenditure,'' said Salah Hamed, the central bank governor, in a press conference with Western reporters.
``The fund was believing in shock treatment,'' he said of the IMF's original demands. ``We reached a balance.''
Armed with the accord, which observers say is of unprecedented leniency, Egyptian officials will go to Paris later this week to seek rescheduling of part of Egypt's $40 billion foreign debt. Egypt has had difficulty meeting its interest payments on the debt.
The agreement ends a severe economic crisis that began in 1985, when Egypt's foreign-currency sources ran into dire straits. In 1985 and 1986, revenues from oil sales, Suez Canal tolls, tourism, and remittances from Egyptians working overseas all slumped. Until then, Egypt had been able to cover expenditures for imports, food subsidies, and debt service with foreign-currency earnings. But as they fell off and the debt-service bill rose, Egypt's balance of payments deficit grew to almost $3 billion annually.