CAIRO: An Egyptian woman exits an exchange store here Sunday. A top International Monetary Fund official visited Egypt Monday, for talks likely to focus on the $4.8 billion loan agreement frozen last month because of political unrest in the country. AFP Photo
CAIRO, Jan 7 (AFP): A rising budget deficit, falling foreign exchange reserves and a sliding currency are adding to the woes of Egypt's fragile government even as it battles a raft of political and social problems.
It is against this background that Cairo is to resume talks on Monday with the International Monetary Fund for a $4.8 billion loan, which many see as a prerequisite for the country's recovery.
Islamist President Mohamed Morsi has set a tough task for his government, headed by Prime Minister Hisham Qandil, which he fine-tuned in a Sunday reshuffle that saw the appointment of 10 new ministers including that of finance.
The government must "accelerate efforts to revive the economy and growth, attract investment, strengthen exports, promote tourism, create new jobs and improve public services," Morsi said last month.
Egypt's economic indicators however paint an "alarming picture", said economist Ahmed el-Naggar of the Al-Ahram Centre for Studies.
"Previously tourism brought $13 billion every year, now it is around $8.8 billion."
Egypt's unemployment has grown to 12 per cent in two years, he said, adding that official estimates are far less than the actual figures in a country where 40 per cent of the population lives on $2 or less per day.
And the latest sign of concern is the fall in Egyptian pound which has dropped to around 6.4 pounds to the dollar, a record low.
The central bank has acknowledged that its foreign exchange reserves have reached a "critical minimum" level.
The reserves fell to $15 billion from $36 billion in two years and are enough to cover only three months of imports.
Egypt is reported to have extensively used its reserves to support the pound and to secure vital imports such as wheat and fuel.
Planning Minister Ashraf Abdel Fattah al-Arabi has declared in the media that the budget deficit could rise to 50 per cent -- 200 billion pounds ($31 billion) -- in the fiscal year 2012-2013 "if strict economic measures are not implemented".
Given the bleak economic scenario, securing the $4.8 billion IMF loan is now considered by many as essential to fuel a recovery.
The talks will be in Cairo with Massod Ahmed, IMF representative for the Middle East and Central Asia.
Discussions will focus on "the most recent economic developments, their policy plans for addressing Egypt's economic and financial challenges, and possible IMF support for Egypt in facing these challenges," the Fund said on Sunday.
"For the system to work, confidence needs to be restored quickly, starting with agreement on an IMF programme," ratings agency Fitch said on January 3.
Finance Minister Al-Morsi al-Sayyed Hegazi, an academic specialising in Islamic finance, said during his inauguration that he is "ready to finalise consultations with the IMF to conclude such a loan".
The IMF package is expected to unlock other international funding and support for undertaking difficult reforms in Egypt.