Egypt's Arabic daily, Al Masry Al Youm published a report on January 2 outlining 14 conditions that the International Monetary Fund (IMF) has set as a possible loan structure for the $3.2 billion facility that is currently being negotiated.

The loan that was originally offered in mid-2011 but was rejected by the Supreme Council of Armed Forces (SCAF) under the pretense that the council does not want to burden future generations with more foreign debt. However, the continued political turmoil and its consequent economic problems have left the government desperate for immediate funding.

Some of the conditions include a stipulation to restructure to the country’s customs law to generate higher income, the reform of the subsidy program to better reach the most impoverished segment of the society and an enforcement of a capital gains tax on the Egyptian Exchange.
   
Conditions
Egypt has long been criticized for its hefty and growing subsidy bill — an element of the budget that the IMF wants to see reformed. While the government is wary of cutting subsidies on fuel and electricity due to the reprecussions such a move will have, the IMF finds it necessary to cut government spending in light of an anticipated budget deficit of LE 160 billion according to financial daily, Al Alam Al Youm, and LE 182 billion according to Reuters.

The reduced subsidy bill will releive some of the pressure on the budget, but on the other hand, analysts expect it will lead to higher inflation.

Given the current level of incomes, higher prices will eventually see a a curb on spending.

The IMF is also looking to gain some degree of oversight on the country’s budget deficit and foreign currency reserves. According to Al Masry Al Youm, the IMF aims to limit the Central Bank of Egypt's (CBE) interference in the currency market by allowing it only $1 billion (LE 6.02 billion) to utilize in controlling the exchange rate — one of the CBE's monetary policy overriding objective's.

It is therefore unclear whether the CBE will accept a condition that hinders the application of its monetary policy. In an earlier report also published by Al Masry Al Youm  on December 26, an unnamed official at the Ministry of International Cooperation was cited saying that the IMF had cancelled its planned visit in January with one of the reasons being the CBE’s refusal to allow the devaluation of the Egyptian pound.

The planned visit has since been re-confirmed however it is unclear whether the IMF and the government will find common ground. bt