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Mon 30 May 2011 05:01 PM

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Egypt agrees initial deal for $3bn IMF loan

Arab country has lost tourism, investor revenues after political uprising ousted President Mubarak

Egypt agrees initial deal for $3bn IMF loan
EGYPT AID: Over the last 10 days the World Bank, Saudi Arabia, Qatar, the US and others have pledged billions of dollars in various forms of aid to Egypt (Getty Images)
Egypt agrees initial deal for $3bn IMF loan
Cairo at night
Egypt agrees initial deal for $3bn IMF loan
r (Getty Images)

Egypt's finance Minister Samir Radwan said on Monday that his country has agreed in principle on a $3bn, 12-month loan from the International Monetary Fund (IMF) that he hoped would be signed by Sunday.

He said that the loan would help Egypt fill a budget deficit for the financial year ending in June 2012 that he estimated would be 11.3 percent of gross domestic product, up from the 7.9 percent that had been forecast before the uprising.

Cairo has been asking international donors and lenders for funding help after protests that ended President Hosni Mubarak's 30-year rule scared away tourists and investors, two of its main sources of foreign exchange.

The crisis has cut into the government's revenue from taxes at a time of increasing demands on expenditure, which include calls for higher wages from state employees and pressure to raise subsidies on basic commodities.

"It can be signed any minute between now and Sunday," when an IMF delegation now negotiating the agreement is scheduled to finish a visit to Egypt, Radwan said via telephone.

Egypt planned to borrow from abroad to help finance the budget deficit, he said: "Bonds, donations from countries, from the US, from the World Bank".

Diplomats say the interim Egyptian government does not have the mandate to make major fiscal reforms and Radwan confirmed that the IMF had softened its usual strict terms.

"We have the usual metrics with benchmarks. You have to reduce the deficit by such and such time. This should not exceed that," he said, adding that the IMF deal would contain "no conditionality of the traditional kind".

He did not give further details.

The diplomats say an IMF agreement could provide a framework for support from other donors and that the European Union would consider providing several hundred million euros of its own aid once an IMF agreement was signed.

Over the last 10 days the World Bank, Saudi Arabia, Qatar, the US and others have pledged billions of dollars in various forms of aid, including direct support for the budget and other funds to narrow a widening balance of payments gap.

The balance of payments swung to a deficit of $5.50bn in the nine months to the end of March from a surplus of $3.11bn a year earlier, the central bank said on Monday.

Radwan said Egypt had told the IMF the payments deficit will burgeon to $2bn in the April-June quarter and $10bn in the 2011/12 fiscal year.

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