The International Monetary Fund said on Thursday it would visit Egypt in the “first days of April” for talks with the government on a possible financing program worth $4.8 billion.
More than two years of political upheaval have battered the Egyptian economy, leaving the country in dire need of IMF funding to relieve a currency and budget crisis. The deal would also unlock billions of dollars in further support for Egypt from other donors.
IMF spokesman Gerry Rice confirmed the visit. In Cairo, government spokesman Alaa el-Hadidi said the IMF would return “some time next week.”
President Mohamed Mursi’s government initialed a deal with the IMF last November but postponed final ratification in December in the face of unrest triggered by a political row over his powers.
Egypt’s crumbling economy
After two years of political upheaval and weakness in the economy, companies in Egypt are struggling with a sinking currency and a shortage of foreign exchange, forcing some to make painful changes to their business plans.
The central bank’s foreign currency reserves have tumbled to $13.5 billion, covering little more than two months’ imports, as tourism and investment have diminished. So the central bank is rationing U.S. dollar supplies in auctions, making it hard for firms to get hold of dollars through the banking system.
“Every single businessman in Egypt is facing this problem,” said Mohamed al-Sadat, vice chairman at Menco Group, a mechanical and electrical maintenance company based in Cairo.
The business, which employs 200 people, buys components such as transformers and ceramics from abroad for use in construction projects. It needs dollars or sterling for the deals.
“You have to get the money from any place, you have to have it, otherwise you are going to shut down and go home,” Sadat said.
Some firms are turning to the black market and paying inflated rates for hard currency, he said. The Egyptian pound is trading between banks at 6.80 to the dollar, but black market street vendors are asking over 7.0.
Business leaders expect the pound to depreciate further; it has dropped 9 percent against the dollar since the end of 2012. Last week Moody’s Investors Service cut Egypt’s credit rating for the sixth time since the uprising against Hosni Mubarak two years ago, saying political instability threatened consumption and investment.
The turbulence has made operating tough for Menco Group. The company sealed a deal to import transformers three months ago, with payment to be made in sterling; it then had to cut the order by over 15 percent because the weakened pound raised the cost.
The firm did not want to cancel the deal entirely because it would risk losing the trust of its supplier, Sadat said.
“Four years ago I used to sit with my employees and make an annual plan: these are our targets, gentlemen, for the next year,” he said. “Now we do that every single month, maybe every 15 days, we sit together and put together a plan. It is very hard – we do not have a vision of what will happen tomorrow.”
Businesses of all sizes across Egypt are feeling such pressures, especially those that rely on imports, said Hussein Sabbour, head of the Egyptian Businessmen’s Association, which represents around 1,000 members.
Restrictions on foreign currency trade have made day-to-day business a nightmare for importers, and working with foreign partners has become difficult, he said.
He gave the example of his own company, which has an engineering and design contract in Bahrain; part of the work is subcontracted to a Bahraini company which he pays on a regular basis through a bank transfer.
While six months ago the payment used to be processed in 24 hours, now he is hitting a bureaucratic brick wall.
“The bank says: Why are you transferring it? Give me the documents, let me see it. So the bank is very afraid that people will send money outside Egypt for no reason,” Sabbour said.
Egypt tightened currency controls in December in response to a rush by some Egyptians to withdraw their savings from banks. This month the restrictions were eased for tourists moving currency across its borders, but stayed in place for Egyptians.
It is not yet clear how much imports have been hit by the hard currency shortage, which has become more serious in the last three months. According to the most recent official data, imports rose to $16.4 billion in the final three months of 2012 from $14.6 billion a year earlier, but the increase was essentially due to higher costs for importing energy.
“Importing used to be extremely easy, money was available in the banks. Now it can still be done, but it has become very expensive,” Sabbour said.