Egypt has little choice but to return to the IMF to help it find up to $15 billion to stave off a full-blown financial crisis, but the ruling army seems to be stalling to avoid blame for approaching a foreign institution for cash on its watch. The $3 billion facility from the International Monetary Fund (IMF) that Egypt negotiated then rejected in June may no longer be enough to manage an orderly currency devaluation and get a growing budget deficit under control, economists say. Adding to woes of an economy hammered by months of turmoil and violence, credit rating agency Moody's downgraded Egypt by a notch this week and warned a further cut could be on the way because of political uncertainty. “It's not enough, because when the $3 billion was negotiated in June, the situation was very different,” said Said Hirsh, an economist with Capital Economics. “The easiest thing would have been for the military council to accept the loans from abroad, give it to Egyptians to live a better life and then hand over power and the Egyptian people would have been responsible to repay these debts,” General Mokhtar El-Mullah told reporters this month. For many Egyptians who follow the nation's finances, the IMF is associated with stringent conditions that have often hurt many in the society, though economists say and officials privately admit the measures have helped the economy as a whole. Prime Minister Kamal Al-Ganzouri said last week the government would not agree to an IMF facility until the outlook for the budget was clearer. But he said it could be necessary and has warned that the country needed some austerity measures to correct its finances, though the most needy would be protected. “If we are forced to resort to the IMF, we will resort to it. This is a matter open for discussion,” he said. Egypt's economy has been reeling since the uprising in February frightened away tourists and investors, and some economists say if Egypt does not come up with external funding soon it could face both a currency and a budget crunch in the first quarter of 2012. Economists say political and economic problems have grown since Egypt rejected the IMF facility in June. The budget deficit has mushroomed, the cost of domestic borrowing has increased, foreign reserves have fallen and demand for Egypt's exports has fallen as the global economy weakened. Any IMF package would almost certainly need to be renegotiated and enlarged, and any delays will only compound the crisis, the economists said. The Egyptian pound's losses are likely to accelerate, driving inflation and interest rates on government securities yet higher, sparking further civil unrest as more people are plunged into poverty and causing already declining FDI to drop further. Several economists estimated that any IMF package would now need to be worth $10 billion to $15 billion. Part of the IMF funding could be used to help the government finance its budget deficit, now running at about 11 percent of gross domestic product, at cheaper rates of interest. By relying solely on the domestic market for funds, the government in recent weeks has driven up interest rates on some of its securities to above 15 percent, versus the 1.5 percent it would have been paying for the IMF funds. The higher cost of debt is in turn widening the deficit and forcing the government to borrow even more. Another part of the IMF financing could help the central bank manage an orderly devaluation of the Egyptian pound. The central bank has helped keep the pound strong since the uprising by drawing down about $16 billion in foreign reserves.
