A team from the International Monetary Fund concluded a two week visit to Egypt on Monday without signing a deal on a much-anticipated $4.8 billion loan, but the international lender said progress with Egypt was achieved.
"The mission made progress in the discussions with the Egyptian authorities on their economic programme and possible financial support from the IMF," Andreas Bauer, mission chief for Egypt, said in a statement issued a little after Monday midnight Cairo time.
The last time an IMF technical team was in Cairo in November 2012, a 'staff level agreement' on the same $4.8 billion facility was signed. The loan deal did not come through, however, at the Egyptian government's request due to domestic instability at the time.
This round of negotiations, however, seems to be a little more difficult than its predecessor as an agreement was not reached right away.
"Discussions with the authorities will continue with the objective of reaching agreement on a possible standby arrangement in support of Egypt," Bauer added.
Egyptian officials played down the setback, saying talks would continue this week in Washington, and in Cairo after that, and the two sides were closing in on a deal.
"We are travelling to the spring meetings [in Washington] in the next two days and are going to be there in the coming week and will complete the negotiations there, and after we return, the mission will come again for us to complete some of the negotiations," Planning Minister Ashraf El-Arabi, one of the Egyptian negotiators, said in a television interview, Reuters reported.
"But the talks are difficult," he told the privately owned CBC channel on Monday night.
The IMF mission arrived in Egypt on 2 April and met with top Egyptian officials including the prime minister, the central bank governor, ministers of finance and planning as well as leaders of several political parties.
Discussions were based on an economic programme that Egypt prepared to secure the loan, which involves measures to tackle the budget deficit. The IMF team had nothing but praise to say about the plan.
“The authorities have already taken valuable first steps to improve the targeting of energy subsidies and are seeking to broaden their revenue base," Bauer said.
The reforms Egypt plans to implement was reflected in the country's draft budget for the coming fiscal year 2013/14, which shows the subsidy bill growing by just 12 percent; a meager amount compared with other spending items such as wages which is planned to grow by 21 percent.
Neither side said why agreement had eluded them but analysts said the ruling Muslim Brotherhood did not want to risk unpopular measures that could hit poor and middle-income Egyptians before parliamentary elections expected from October.
"I don't think they will do any meaningful reform before the elections. That's the bottom line," said Samir Radwan, who was the first finance minister after the overthrow of former president Hosni Mubarak in 2011.
Radwan negotiated a $3.2 billion IMF loan with fewer conditions at the time but the military council that ruled Egypt then vetoed it.
Since then, foreign reserves have more than halved to the critically low level of $13.4 billion, the Egyptian pound has lost about 10 percent against the dollar, tourism and investment have withered and the country faces fuel shortages and power cuts.
An IMF programme, the government believes, could help stabilise the economy in the rocky transition to democracy, unlocking up to $15 billion in aid and investment to improve a dismal business climate.
Egypt secured $5 billion in stopgap financial support from Arab allies Qatar and Libya last week, removing some of the sense of urgency about obtaining the IMF loan.
Economists said the government could muddle through for several months with funding from Arab sources, but only an IMF agreement would restore business confidence and investment.
"It comes down to the fundamental question of whether Egypt can reform and achieve an economic recovery over the medium-term and that comes down to an IMF-backed programme, which is the key to restoring the confidence of investors, who will not come back without an IMF deal," said Brahim Razgallah at JP Morgan.
The IMF's conditions for lending were milder than past terms for Latin American and Asian countries, not least because the fund's main shareholders, the United States and European nations, see the strategic importance of stabilising Egypt.
By contrast Tunisia, where the ousting of dictator Zine Al-Abidine Ben Ali in January 2011 helped inspire the Egyptian uprising in what became known as the Arab Spring, is set to sign a $1.78 billion loan deal with the IMF on Tuesday, a government source in Tunis told Reuters.
"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."
