Egypt seeks IMF loan

19 May 2011

Cairo will need up to $12bn in budget support

Egypt has approached the International Monetary Fund (IMF) for up to $4bn in a loan to support the country’s public finances.

According to minister of finance Samir Radwan, Egypt will need up to $12bn in budget support until the end of the next fiscal year in June 2012.

Egypt’s revolution that saw ex-President Hosni Mubarak ousted in February has impacted adversely on the country’s economy. Populist demands of the people after the revolution have added pressure on the budget.

While some economists have indicated that the country’s long-term prospects have been improved by the move towards democracy, the immediate impact is proving a strain on the country’s finances.

Should Egypt secure the IMF loan, it will add to similar arrangements with the World Bank and the African Development Bank. Radwan has said that the deficit is likely to reach 9-10 per cent of economic output in 2012.

The UK’s Barclays Capital estimates that for Egypt to meet its financing needs, a support package of at least $6bn-$7bn from its external creditors needs to be disbursed to ease its liquidity problem and avoid a sustained depletion of foreign exchange reserves.

“Anything short of this amount could keep downward pressure on Egyptian pound and discourage the return of much-needed portfolio flows” says the Barclays report. “We think Egypt will secure the funds as the international community recognises Egypt’s critical political and economic importance in a troubled region and the need to ensure its successful transition.”

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