IMF agrees to a $3 billion loan for Egypt

By Mary Beth Sheridan,

CAIRO — The International Monetary Fund agreed Sunday to a $3 billion loan to help Egypt overcome a cash crunch and boost salaries in the wake of the pro-democracy uprising that toppled its longtime president.

The world’s most populous Arab nation has been struggling to close a $10 billion budget deficit for the fiscal year beginning in July. Since the ouster of longtime president Hosni Mubarak in February, the critical tourism industry has suffered major losses and foreign investment has tapered off.

Independent polls show that Egyptians are pinning their hopes for an improved economy on the new government to be chosen this year. Diplomats and analysts fear that if the country becomes unstable economically, the population could lose faith in democracy.

The one-year loan, which carries a below-market interest rate of 1.5 percent, still needs final approval from the IMF executive board.

“Following a revolution and during a challenging period of political transition, the Egyptian authorities have put in place a home-grown economic program with the overarching objective of promoting social justice,” Ratna Sahay, deputy director of IMF’s Middle East Department, said Sunday.

Egypt’s annual budget, announced last week, would increase subsidies for food and fuel, create construction jobs and raise the minimum wage to about $30 a week, as well as increase some taxes.

The Egyptian economy had been expanding strongly before the world economic crisis, but authorities now expect only 2.5 percent growth this year, less than half of what had been forecast. Unemployment is more than 10 percent, and much higher among the young people whose frustration fueled the revolution.

Anger over government corruption, and the yawning gap between rich and poor, also contributed to the uprising.

Egypt’s interim government has appealed for financial help from multilateral financial institutions and wealthy allies, and so far Saudi Arabia has provided $4 billion in grants and loans.

The World Bank has promised about $4.5 billion over two years in grants, loans and loan guarantees. President Obama has pledged to swap $1 billion in Egyptian debt for development projects in the country, but that may take months to get congressional approval. He has also offered another $1 billion in loan guarantees.

Egyptian Finance Minister Samir Radwan said that despite the promises, Egypt had received more “hugs and kisses” than actual money so far.