CAIRO — The Egyptian government is backing away from an ambitious economic strategy of tax increases and subsidy cuts because the political support for these moves is lacking and because it fears inciting further unrest. The prime minister, Hesham Qandil, said last week that the government was preparing a new version of overhauls that the government hopes will unlock a $4.8 billion loan from the International Monetary Fund. The government has been working for months on a package of revenue increases, including a sales tax, and sharp cuts in subsidies, particularly on fuel. But officials involved in the drafting process say that under the revised plan, most major budget cuts and revenue-generating measures will not be implemented for several months. The delays are occurring as the US Secretary of State John Kerry visited Cairo on Saturday and urged political parties to “come together around the economic choices and to find some common ground.” Any consensus between the governing Islamist party, the Muslim Brotherhood, and the opposition is unlikely. The National Salvation Front, an umbrella opposition group that includes Nasserists as well as the former presidential candidate Amr Moussa, has said it will boycott parliamentary elections scheduled for late April. “It's become a wholly political issue, so whatever is spelled out will not get any support, those are the realities,” said a senior official at the ministry of finance who is involved in the drafting process and asked not to be identified by name. “The measures are still the same, but what has shifted is a more gradual phasing-in of the measures given the political agenda,” he said. An economist who advises the central bank and was consulted on the plan said the Egyptian government would spend some time refining a program, and any major steps “won't be taken before summer.” The government would start with the least controversial measures, including a “luxury” sales tax on tobacco, alcohol and soft drinks, he said. Income tax changes were unlikely to be pushed through until at least July. The government has raised the minimum income liable for tax to 12,000 Egyptian pounds, or $1,780, from 9,000 pounds. The top 25 percent bracket will also be raised to 2 million pounds from 1 million pounds. The plan would also gradually increase fuel prices for energy-intensive industries, aiming to cap the budget deficit at 10.9 percent of GDP this fiscal year and reduce it to 9.5 percent of GDP in the next. Without the changes, the budget deficit would be as much as 12.3 percent of GDP, the government said. There is a danger that Egypt is heading for a grim summer of higher food prices, food and fuel shortages and electricity blackouts that many observers in and out of government fear could be a recipe for further unrest. There are steady cases of “civil disobedience” across the country, with workers challenging the government of President Mohamed Morsi. The unemployment rate has risen to 13 percent from about 10 percent before the revolution two years ago. About 74 percent of those without work are 15 to 29 years old. “As we've seen over the past few years, food prices can be a major catalyst for political unrest,” said Neil Shearing, an economist at Capital Economics in London. Reaching a final agreement on an IMF accord has become a central issue for Egypt's economic policy horizon, not only because of the funds being offered but because a number of other donors, including the European Union and the United States, have made the successful conclusion of a loan deal a condition for their own assistance to investment in Egypt. An IMF spokesman said last week that the organization was analyzing the government's “revised fiscal projections” before resuming discussions with the Egyptian authorities. In a summary of the government's economic plan obtained by lobby groups during a meeting to discuss the Egyptian economy, the government acknowledges that it “has decided to adopt a more gradual method” to achieve financial stability. — International Herald Tribune
