Egypt’s shaky finances: Can the IMF and government agree on a loan deal?

The IMF wants assurances that the political leaders who emerge to run Egypt after elections next month will be on board with the financial requirements underpinning a proposed $3.2 billion loan.

Amr Abdallah Dalsh/Reuters
Khairat al-Shater, the presidential candidate from the Muslim Brotherhood's Freedom and Justice Party, initially opposed an IMF loan, but now appears to support it.

The International Monetary Fund is moving closer to approving a multibillion-dollar loan to help Egypt shore up its shaky finances, but the failure of some emerging political players in the Arab Spring country to endorse the plan is holding up a final agreement.

Egyptians vote next month in the first presidential election since the fall of Hosni Mubarak last year. And the IMF wants assurances that the political leaders who emerge to run the country will be on board with the financial requirements underpinning a proposed $3.2 billion loan.

On the other hand, some Egyptians and international financial experts are asking if it is even appropriate for a lame-duck military government to complete a deal that ties the hands of a future government.

The issue of Egypt and, more broadly, the Arab Spring countries, will be a chief concern of the spring meetings of the IMF and World Bank this weekend in Washington. The question is: How does the global financial community follow through on its commitment to help them on the road of reform?

In December, IMF Managing Director Christine Lagarde said her institution had set aside $35 billion for loans to help shore up the Arab countries in transition. But since then, concerns about commitments to reform and questions about leaders’ ability to hold up their end of a deal have held up agreements.

As Ms. Lagarde said at a Washington press conference Thursday, the IMF “stands ready [and] will help each of those [Arab Spring] countries,” but she said the countries would also have to adhere to the IMF’s rules to get the loans.

“With IMF programs, it takes two to tango, right?” she said.

In the case of Egypt, the wise thing might seem to be to wait for the new government to emerge, given the doubts about future support for a loan. But the problem is that Egypt’s finances and economy are deteriorating now, and fast: The country’s foreign reserves have shrunk by more than half, tourism has plummeted, unemployment has jumped – and as a result, Egypt needs an infusion of as much as $12 billion from public and private sources to stabilize its finances, experts say.

The IMF has two basic conditions for extending loans Lagarde says: First, the IMF must have negotiated with authorities an economic plan that will “actually help that country pull itself out of the difficulty it is in”; and second, there must be “broad political support in the country” for the loan program.

Until recently, the Muslim Brotherhood’s Freedom and Justice Party, which emerged as a dominant political force in parliamentary elections several months ago, opposed any IMF package, but party leaders appear to have switched to favoring the loan. That endorsement has helped fuel renewed optimism among IMF officials that a loan the organization had hoped to agree on with Egypt in March can still be concluded this month.

On Friday, Masood Ahmed, IMF Middle East director, said prospects for a deal with Egypt were brightening. “We feel there is some progress in terms of getting a commitment and broad buy-in to the objectives and the measures” of a loan program, he said.

Concluding a loan with Egypt would be a good signal to the region, he added, which he said continues to experience a slowdown in economic growth as a result of the repercussions of political upheaval and the effects of Europe’s debt crisis.

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