Egypt and the IMF: towards a bigger loan?

imfThe update given by the Egyptian Planning Minister after talks with the International Monetary Fund has raised eyebrows. Minister Ashraf El-Araby described the talks as being “positive” but added that the “economic situation has become worrisome and quick measures are needed.”
The minister hopes that a deal in principle will be made within a fortnight. Egypt was able to reach a provisional agreement for a $4.8 billion loan at the end of last year. He said the government will “intensify its efforts in the spring meetings with the IMF” in order to have an additional funding to cover the financing deficit until mid-2015. “There are ongoing discussions to increase the loan, estimated at $4.8 billion but it may rise, especially with the increase in the budget deficit to $20 billion,” the minister said.
Since the provisional agreement in November, the economic and financial situation in Egypt has changed leading to a larger fiscal gap. The IMF is willing to give more than the previous $4.8 billion provided that reforms required by it are implemented, amongst which are tax increments and politically risky cuts in state subsidies for fuel and food, including bread. The implementation of a sales tax on goods and services was suspended shortly after being introduced due to the violence it provoked in the streets.
The price of cooking gas has recently been increased. Foreign currency reserves have also shrink to $13,4 billion by the end of last month, the  Egyptian pound has lost nearly one-10th of its value against the dollar this year and has fallen more sharply on the black market in the last few days, due to the scarcity of the US currency. Prime Minister Kandil is urging for the rationalization of energy consumption as a “national duty.”