President Mursi scraps plans to introduce wave of new taxes on goods and services
Egypt has put off negotiations with the Washington-based IMF for a $4.8bn loan, crucial to bolster the government’s weak finances, as the political crisis in the country deepens.
Cairo asked the IMF to postpone talks about the loan after a tumultuous week. On 10 December, Islamist President Mohamed Mursi scrapped plans to introduce a raft of tax increases on services and goods including cigarettes, soft drinks, mobile phone calls, water and electricity. The measures had only been announced earlier the same day and were part of a plan to restore Egypt’s finances, agreed with the IMF as part of the bailout package.
In November, Cairo and the IMF reached an initial agreement on the loan, which is expected to substantially boost confidence in the country’s economy and unlock billions of dollars of further foreign aid. However, the IMF has said it will not agree to any plan that is not backed by Egyptian society. Analysts say the delay means the government may have to renegotiate the IMF agreement if it fails to win popular support for the austerity measures and its macroeconomic outlook has changed since the previous deal was made.
A referendum on a new constitution is also planned for 15 December, which threatens to further deepen the political divide between Mursi and opposition groups. Although the new constitution would reduce the powers of the president and strengthen the parliament, it also insulates the army from civilian oversight and paves the way for religion to take a greater role in legislation. Mohammed el-Baradei, a high-profile opposition figure, said the document “undermines basic freedoms”.
Rival demonstrations by the president’s supporters and opponents are expected to occur in the run-up to the referendum, illustrating how deeply divided Egyptian society is.
The IMF said in a statement that it “stands ready to continue supporting Egypt during the ongoing transition”.
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