Egypt must convince people of need for IMF: Lagarde
Abidjan, January 9, 2013
Egypt's government must strongly endorse a $4.8 billion IMF loan agreement to its people as a step towards stabilising an economy pummelled by a turbulent transition from autocratic rule, the head of the world lender said on Tuesday.
Egypt concluded an initial agreement with the International Monetary Fund in November but postponed concluding the deal last month due to political unrest triggered by President Mohamed Mursi's drive to fast-track a new constitution.
The political strife sparked a rush to sell Egyptian pounds, sending the currency to a record low against the US dollar and draining foreign reserves. The IMF loan is crucial to plugging Egypt's balance of payments and budget deficits.
"The IMF needs to have the commitment of the political authorities that can actually endorse the programme, own it, and propose it to the population as theirs," Christine Lagarde told Reuters during a visit to Ivory Coast.
Confronted by lethal street violence after Mursi awarded himself sweeping powers in November, the president postponed planned tax increases seen as part of a package of austerity measures needed to secure the IMF loan.
Egypt must now renegotiate some terms of the accord, and economists say the IMF board's approval is not a certainty - especially if there is any sign of government wavering over implementing what are likely to be unpopular conditions.
While any specific terms are yet to be made public, any IMF demands to cut spending or remove price subsidies will be hard to sell to an already fractious population ahead of parliamentary elections, more than two years after Hosni Mubarak was ousted in 2011 after 30 years in power.
Qatar threw Egypt an economic lifeline on Tuesday, announcing it had lent the country another $2 billion and given it an extra $500 million outright to help control the currency crisis - easing the immediate pressure on Mursi to negotiate the IMF deal.
Analysts, nonetheless, view completion of the deal as vital to give the Islamist government credibility with the markets.
The IMF's Middle East and Central Asia director, Masood Ahmed, travelled to Cairo and met Mursi on Monday.
"Based on what I've heard from my director of the Middle East, we are at a good tipping point," Lagarde said. "I'm pleased the mission will be resuming its activities on the ground shortly."
Speaking during a tour of Africa, Lagarde also welcomed last week's "fiscal cliff" deal in the United States, saying the compromise permitted the IMF to maintain its growth outlook for the world's largest economy.
"We had a growth forecast of 2.1 percent for the United States in 2013. With what has been agreed, properly implemented of course, we'll be within the parameters we had set," she said.
The IMF chief said that while she was "cautiously optimistic" about the global outlook, serious risks remained.
"All of that is subject to no unravelling of the global economic situation," she said. "In other words ... appropriate decisions to continue to consolidate the euro zone and not facing the abyss of the debt ceiling in the United States." - Reuters