Egypt says it will not need IMF, World Bank funds
Egypt will not borrow from the World Bank and International Monetary Fund after revising its budget and cutting the forecast deficit, even though a loan had been agreed, Finance Minister Samir Radwan said on Saturday.
The 2011/12 deficit in the first draft budget was forecast at 11 percent of gross domestic product, but was revised to 8.6 percent because of a national dialogue and the ruling army council’s concerns about debt levels, the minister told Reuters.
“So we do not need to go at this stage to the Bank and the Fund,” Mr. Radwan said, adding that Egypt, which had borrowed from the IMF under ousted president Hosni Mubarak, still had the “best relations” with the two US-based institutions.
Despite the budget revisions, the government said it still expected growth of 3.0-3.5 percent, in line with previous forecasts, which some economists said could prove optimistic.
Egypt this month agreed on a $3 billion, 12-month standby loan facility from the IMF, which Cairo had said came with more lenient terms than usually associated with such lending.
An IMF spokesman confirmed on Saturday that Egypt has scrapped plans for the loan program.
“In light of these changes, the authorities see no immediate need for a financial arrangement from the IMF,” the spokesman said, adding: “The IMF continues to maintain a close policy dialogue with the authorities.”
The IMF and World Bank had been among a range of foreign countries and bodies to offer funds to Egypt to help cover a big budget shortfall after the economy was plunged into turmoil by the mass protests that drove Mubarak from office on Feb. 11.
Egypt’s cabinet had approved on June 1 a budget for 2011/12 that increased spending by a quarter to create jobs and help the poor. That was revised and a new draft announced on Wednesday that included raising income tax and reducing fuel subsidies.
Gulf Arab states are among those who offered support.
Mr. Radwan said Qatar had provided $500 million for budgetary support in the past week. “That is a gift,” he said, when asked if there were any conditions attached to the Qatari cash.
He said Saudi Arabia had earlier offered a similar amount.
The minister said the first draft of the budget, which forecast a deficit of about 170 billion Egyptian pounds, was discussed with activists, writers, the business community, trade unions and non-governmental organizations.
“As a result of this dialogue and given the concern of the military council not to have huge debts for the government that comes after the election, the deficit was reduced to 134 billion pounds, equivalent to 8.6 percent of GDP,” Mr. Radwan said.
“The result is, we didn’t need outside finance. We are covering the largest part from local sources and we are waiting for outside support to come in,” he said.
“If we had gone with the other package, we would have needed to go (to the IMF),” the minister said, adding the new budget would not go back on a commitment to social justice.
Protesters who rallied against Mr. Mubarak demanded political freedoms and an end to what they saw as a system of rule from which a rich elite benefited at the expense of the poor.
On the budget plans, Mr. Radwan said: “The program is our program, so there is no conditionality (from others). It is just a changed program.”
Asked about whether Egypt might return to the international markets with a new Eurobond, he said: “I don’t rule out anything. Once the budget is approved, finalized, then I start looking about the details about the financing.”
In the latest budget, the government sees spending up 14.7 percent at 490.6 billion pounds in the 12 months starting in July, down from an estimate of 514.5 billion pounds given when a draft budget was shown to the media on June 1.
Mr. Radwan said the budget had been reduced in part by raising income tax from a 20 percent flat rate to 25 percent on firms and individuals earning more than 10 million pounds. Profits above that figure would be taxed in the new band.
“I consulted with the business community, and they said they are willing to pay that. That is why I didn’t raise it to more than 25 percent, because beyond that we would be back to where we were before (several years ago) when income tax was 40 percent and there was very little tax collection,” he said.
Cigarette tax would rise to 50 percent from 40 percent.
“Then we started opening the subsidies file. We are not, repeat not, touching subsidies on food or butagaz for the poor,” said, adding fuel subsidies for industries and others would be reduced.
Egypt’s subsidy bill had been running at about 137 billion pounds with about 99 billion pounds of that spent on fuel subsidies, he said without specifying the period. He said the fuel subsidy bill would now be reduced by 7.5 billion pounds.
In a bid to help industry cope with the change, he said the government would help brick-making factories switch from diesel to natural gas and would then remove the fuel subsidy.
Extra revenue would also come from revising gas export prices, he said adding that such revisions had already been agreed with Jordan and Spain. Egypt also exports to Israel.
He said the military council had to approve the new draft budget, but did not foresee any hitch.