Egypt is stalling on the terms of a $4.8 billion International Monetary Fund loan to help it fight a deepening economic crisis, and no deal is likely while an IMF team is in Cairo, diplomats said on Sunday.
The IMF mission is set to leave on Tuesday after nearly two weeks of talks, and negotiations may continue on the sidelines of this week's IMF ministerial meetings in Washington, they said.
An IMF program could help stabilize Egypt's economy in the rocky transition to democracy since the 2011 overthrow of former President Hosni Mubarak, unlocking up to $15 billion in aid and investment to improve a dismal business climate.
But diplomats and politicians say Islamist President Mohamed Mursi had yet to endorse required tax increases and subsidy cuts that prompted him to halt implementation of an earlier IMF deal in December, two weeks after it was agreed in principle.
"The mission said it is waiting until now for the government to present some of the roadmap related to reforming the economic system," Abdullah Badran of the hardline Islamist Nour party told Reuters after meeting the IMF team.
A spokesman for the president's office declined comment on whether Mursi had given the green light for an agreement.
One Western diplomat said that after securing $5 billion in stopgap finance from Qatar and Libya last week, Egypt no longer felt the same sense of urgency to conclude the IMF negotiations.
"That seemed to be the way things were moving since the Libyan and Qatari announcements. You can imagine them reaching that conclusion; that they have reached a short-term fix, it means they are not that beholden to the IMF," he said.
Egypt's economy has deteriorated significantly since the November IMF agreement stalled. Tourism and investment have dwindled due to political turmoil in the Arab world's most populous country, where 40 percent of the 84 million citizens live on less than $2 a day.
The projected budget deficit has risen to around 11 percent in the fiscal year ending in June, foreign currency reserves have shrunk to less than needed to cover three months' imports, and the country is suffering fuel shortages.
The IMF delegation has been holding talks in Cairo since April 4 on a revised economic program that includes a gradual reform of costly fuel subsidies that swallow 21 percent of the budget or 12 percent of gross domestic product, and an extension of sales tax to fewer items than previously planned.
The country's finance minister and central bank governor have told local media the talks were going well but diplomats said the IMF had not received clear answers on some issues.
"The IMF and the international community want to help but are really frustrated that Egypt isn't doing as much as it should to help itself," said Angus Blair, chairman of the Signet Institute, an economic think-tank for the Middle East and North Africa region. "I expect there is significant frustration."
Diplomats said the ruling Muslim Brotherhood was reluctant to impose unpopular tax and fuel price increases before parliamentary elections provisionally due to start in October.
Nevertheless the Brotherhood's Freedom and Justice Party is pushing through parliament new tax laws apparently linked to the IMF deal. Opposition politicians accuse the government of trying to impose its will without dialogue.
Planning Minister Ashraf El Araby warned last week that Egyptians would face worse austerity without an IMF deal. Ministers fear a long, hot summer of power cuts and possible fuel and food shortages that could spark unrest.
An Egyptian delegation including the central bank governor and the finance and planning ministers will be in Washington this week for the annual IMF/World Bank spring meetings and may hold further talks on the loan deal, officials said.
The IMF mission, headed by Andreas Bauer, has spent the last few days meeting government and opposition political leaders to seek broad backing for implementation of the reform program.
Politicians who have participated in those sessions said there was wide acceptance of the need for a loan but less willingness to accept even relatively mild conditions attached.
"We heard the IMF's view, and it became clear to us that they are asking for some reforms to the tax system, and their view is that there must be a review of subsidies," said Badran, the Nour party's parliamentary floor leader. "This, in our view, will increase the burdens on the poor."
Leftist Popular Current party leader Hamdeen Sabahi said his group would support an unconditional loan that supported the Egyptian economy, but it must not be on terms that put extra burdens on the poor, farmers, workers and the middle class, or that dictate how the government spends the money.
"The Popular Current cannot agree to a loan with conditions that include lifting subsidies from basic commodities," Sabahi, third in last year's presidential election, said on Facebook.
Diplomats said the IMF had softened its conditions compared with many other adjustment programs, partly because the United States and European Union countries that are the Fund's biggest shareholders were determined to support Egypt.
"There is a sense that Egypt is too big to fail," one senior diplomat said. "The trouble is that the Egyptians know this, and think they can use it to escape the conditionality."
IMF studies show that most fuel subsidies benefit wealthier Egyptians rather than the poor, few of whom have cars.
"Estimates show that the richest 20 percent of the population in Egypt receives more than half of the spending on fuel subsidies," said Caroline Freund, the World Bank's chief economist for the Middle East and North Africa.
That may explain why the subsidies are so hard to reform, with powerful interest groups keen to preserve their advantages.