The Egyptian government formally requested a $4.8 billion loan from the International Monetary Fund (IMF) yesterday. The request was made during a visit by IMF chief, Christine Lagarde.
According to the Financial Times, the loan will take months to negotiate. The IMF are concerned to ensure that Egypt will adopt and implement a serious austerity programme in order to reduce the deficit. Such a programme would inevitably result in public expenditure cuts and rises in energy costs.
The budget deficit has been exacerbated by the decline in tourism and foreign investment following the overthrow of former President Mubarak, according to BBC News. Egypt's deficit for the current financial year is predicted to be 7.9 of gross domestic product (GDP) and its debt stands at over $200 billion. The country, as Reuters points out, is having to borrow money very expensively in short term markets. In order the address the problem Egypt has received $1.5 billion in direct support from Saudi Arabia and $2 billion from Qatar last week. It is currently seeking a further $500 million from the United States.
However, as reported by Ahram Online, many of the protesters who participated in the revolution took to the streets again, demanding that the IMF loan be rejected. According to Al Jazeera, the protesters see the proposed loan as only of benefit to "business men" and as a continuation of the IMF privatisation carried out under Mubarak.
There is also serious resistance to the loan from the Freedom and Justice Party (which is nominally independent of the Muslim Brotherhood). The party rejected a proposed IMF loan in March of this year. Mohamed Gouda, official spokesperson of the party’s economic affairs committee, earlier today said:
There has been no communication between the FJP and the government, so far. No information about the loan has been received. The FJP will hold a meeting after obtaining the relevant data then announce its final position.
Such opposition to the proposed loan, both from protesters and the Muslim Brotherhood, creates serious difficulties for President Morsi's government. As Alia Moubayed, an analyst at Barclays in London, said:
Any programme that is light on reforms won’t be taken seriously by the investor community. The reforms have to address the structural problems that have led Egypt to this dire circumstance, notably its fiscal vulnerabilities.
Yet whilst international finance interests will demand substantial public sector cuts and increases in state revenue, such measures are likely to be strenuously opposed both on the ground that austerity measures would increase the gap between rich and poor and also because of the expected negative effect on the economy's capacity to grow.
Morsi's government is urgently in need of money. However, any such loans will only come with strings attached. Those strings will be a bitter pill for a people who expected a better future after the overthrow of Mubarak.