Egypt predicts a speedy conclusion to talks with the International Monetary Fund on a $4.8 billion loan that will help save its economy from crisis. It may not be that easy.
In talks due to start on Wednesday, Cairo must convince the IMF that it is serious about reforms aimed at boosting growth and curbing an unaffordable budget deficit. That implies tax hikes and politically risky cuts in the generous system of state subsidies for fuel and bread.
"The IMF is in for a tough visit," said Angus Blair, chairman of Signet Institute, a think tank for the MENA region.
"There is going to be a lot more pressure on Egypt to come out with a positive economic plan, to try to construct a plan which would build domestic confidence, investment and economic growth," he said.
The government hopes to have an agreement finalised by the IMF's Spring meetings, held from April 16 to 21, Finance Minister Al-Mursi Al-Sayed Hegazy said on Monday. IMF officials have not given a timeline.
The stakes are high for the Muslim Brotherhood-led administration: Foreign currency reserves are at a critically low level that cover less than three months of imports, and the local currency has lost a tenth of its value since the start of the year.
Seeking to protect the Egyptian pound, which is trading even lower on the black market, the central bank has lifted interest rates, increasing the cost of borrowing needed to finance a state deficit that will hit 12.3 percent of GDP without reforms.
The financial crunch has forced the government to cut back on fuel imports, leading to shortages that have caused transport disruptions and power cuts. To ease the shortages Cairo has said it aims to import oil from Iraq and neighbouring Libya while paying off some of the money it owes to foreign energy firms.
Egypt has also cut back on wheat imports, running down grain reserves in the hope a bumper harvest will be enough to feed the country of 84 million people. Egypt is the world's biggest wheat importer.
Without a deal, Egypt could still limp along for several more months, but it would not be comfortable.
As the weaker pound drives up inflation, shortages threaten to exacerbate tension in the street, where Mursi's opponents have been airing their political grievances in protests that routinely turn violent.
Pointing to the scope for more trouble, sellers of subsidised cooking gas protested outside the supplies ministry on Tuesday over a hike in the prices of bottled gas announced by the government on Monday – a move they linked to the IMF talks.
"It is impossible for us to handle this price rise," said Fahmy Ahmed, 39, one of a hundred protesters who complained the price rise would eat into the margin they make by selling the subsidized gas on to consumers at a mark-up.
BLAMING THE IMF
The IMF deal has already fallen victim to political pressure once. Egypt initialled a deal with the Fund in November, only to postpone ratification a few weeks later in the face of protests ignited by political conflict between Mursi and his opponents.
Some of Mursi's opponents are keenly aware of the need for a deal. "The importance is not the amount of money but the message it sends that the Egyptian economy will be helped," said Amr Moussa, who ran for the presidency last year.
The postponement of parliamentary elections until later this year gives the government more political breathing room to reach a deal: Mursi has said the polls could now get under way in October instead of the original start date of late April.
But it also means the IMF will be talking to a government likely to be overhauled by the end of the year, a factor likely to complicate the negotiations. "At this stage, it is impossible to tell how quickly a deal will be signed," said Anthony Simond, investment analyst at the UK-based Aberdeen Asset Management.
"In an ideal world, an IMF programme would be in place for the start of the next fiscal year beginning in July, but given the delays that we've seen over the last couple of years and the current political climate, whether that is achievable is up to debate," he said.
The IMF has stressed in the past that it wanted broad political consensus on an agreement. After cancelling last year's deal, the government launched a "social dialogue" it billed as an attempt to address citizens' concerns.
The result was amendments to the reform plan drawn up last year. Speaking last month, a senior U.S. diplomat said the IMF had found the government's latest proposals unsatisfactory.
Lawmakers in the Muslim Brotherhood-led upper house of parliament were debating amendments to tax laws on Tuesday, said Essam el-Erian, deputy head of the Brotherhood's political party, pointing to last-minute changes ahead of the IMF visit.
Mohamed Abolghar, head of the Egyptian Social Democratic Party, complained that the government had failed to consult the opposition on anything. He added: "We strongly believe that we need this loan but certain changes in the economy must be made."
