Egypt and the International Monetary Fund have reached an initial agreement for a $4.8 billion loan to revive the country's ailing economy.
Egypt and the International Monetary Fund have reached an initial agreement for a $4.8 billion loan to revive the country’s ailing economy.
The deal, agreed after nearly three weeks of negotiations in Cairo, will support the government’s economic program for 22 months, the IMF said in a statement.
“The Egyptian authorities have developed a national program that seeks to promote economic recovery, address the country’s fiscal and balance of payments deficits, and lay the foundation for rapid job creation and socially balanced growth in the medium term,” said Andreas Bauer, head of the IMF negotiating team.
Egypt’s government views the loan as crucial to addressing a range of economic troubles it is facing in the wake of last year’s uprising that toppled president Hosni Mubarak’s 29-year regime. The new economic plan put forward for the loan includes reform of a long-existing energy subsidy program – an explosive issue in a country where over 40 percent of a population of 83 million live on less than $2 dollars a day.
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Labor unrest has continued nearly two years after the uprising, which was fueled in part by demands for social justice. In the latest high-profile example, Cairo subway workers went on strike last week to protest poor working conditions and bad management. The strike ended after the government fired the chairman of the subway system.
The new Islamist government of President Mohammed Morsi is also struggling with low growth rates, a plunge in foreign currency reserves, and a loss of tourism revenues and foreign investment since the anti-Mubarak uprising nearly two years ago.
The IMF’s Bauer said Egypt’s new economic program will help reduce vulnerabilities to further shocks. Fiscal reforms, particularly the reduction of “wasteful expenditures” in the form of energy subsidies, are key parts of the program.
Egyptian authorities plan to raise revenues through tax reform, he added, using the resources generated from new taxes to boost social spending and investment in new infrastructure.
Prime Minister Hesham Kandil said a “better and fairer” tax system was key in his country’s reform program, with measures to reduce tax evasion.
“The burden will mostly be shouldered by the rich and those with high income. Changes in the tax system will guarantee poor Egyptians a higher income,” he said in comments carried by Egypt’s official MENA news agency. The tax ceiling, he added, will remain at 25 percent.
The Egypt-IMF agreement will be submitted to the IMF’s executive board for approval in mid-December, Bauer said.