Egypt and IMF reach deal on $4.8 billion loan

Associated Press + More

By MAGGIE FICK, Associated Press

CAIRO (AP) — 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 views the loan as crucial to addressing a range of economic troubles it is facing in the wake of last year's uprising. 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 more than 40 percent of a population of 83 million live on less than $2 dollars a day.

Labor unrest has continued nearly two years after the uprising, which was fueled in part by demands for social justice. Last week, subway workers went on strike 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 is also struggling with reduced growth rates, a plunge in currency reserves, and a loss of tourism revenues and foreign investment since the revolt that toppled longtime president Hosni Mubarak.

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.

The initial agreement will be submitted to the IMF's executive board for approval in a few weeks, Bauer said.

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.