IMF delegates in Cairo for talks on vital $4.8 billion loan

CAIRO, Egypt — International Monetary Fund (IMF) delegates are in Cairo for talks with Egyptian officials about a vital $4.8 billion loan.

Egypt's economy, hit by high unemployment, low foreign reserves and a worsening fuel crisis, desperately needs the loan, which is seen as a gateway to a possible $15 billion more in multilateral aid for the country.

"The idea is that the IMF would come in and give a green light to open the way for perhaps $15 billion worth of funding to come into the economy over the next two to three years," David Butter, an associate fellow at Chatham House, told the BBC.

President Mohamed Morsi's government will have to convince IMF officials that it has a serious and plausible plan to reform its reeling economy.

On Tuesday, just before talks were set to begin, the IMF suggested it may change the size of the proposed loan. "The size may vary. It's a question of needs and what's required," IMF's Middle East Director Masood Ahmed said.

Egypt hopes to reach a final agreement before IMF's upcoming spring meeting, held from April 16-21, according to Reuters, though the deal has been in the works since last November and there have been delays.

GlobalPost's senior correspondent in Egypt, Erin Cunningham, said the IMF's five-day visit is "likely the most critical for the government here so far."

"With protracted unrest and political uncertainty scaring off would-be investors and diminishing foreign currency reserves to critical levels, the crisis can no longer be ignored," Cunningham said from Cairo.

If Egypt plans on securing the $4.8 billion loan before the end of the negotiations next week, it will need to prove it is ready to take measures to slash its budget ­— and, in particular, a hefty subsidies bill.

The government is already struggling to pay for crucial imports like fuel and wheat, two commodities heavily subsidized for both rich and poor alike. Wheat imports are a particularly volatile issue, and Egypt remains the world’s largest importer of wheat for a massive subsidized bread program that feeds legions of the country’s poor.

Egypt’s agricultural minister said Tuesday that the country plans to cut wheat imports by 10 percent over the next year, while a cabinet report last month said the country’s strategic wheat stocks — of both local and international grain — were enough to cover just 85 days.

More from GlobalPost: Egypt wheat imports to be cut by 10%

Egyptian officials insist that the country can rely on its domestic harvest to make-up for the shortfall, but that also may prove difficult. The government is already having trouble purchasing fuel imports, including the diesel that runs much of the irrigation systems for the country’s farmland.

How quickly this may contribute to severe wheat or bread shortages remains unclear. But regardless of whether or not loan talks succeed, Egypt is in for a tough road ahead.

IMF's arrival in Cairo for talks follow recent and unsettling reports of arrests of vocal opposition members critical of Morsi's administration.

"The recent arrests, the violence in the streets, the lack of inclusivity with respect to the opposition in public ways that make a difference to the people of Egypt, are all of concern today," US Secretary of State John Kerry said on Tuesday. 

"We have put a series of real choices to the government of Egypt, but in the end they have to make those choices," Kerry added. "It's really a tipping point for Egypt."

Kerry visited Cairo last month and announced a $250 million US economic aid package, citing Egypt's "extreme needs."

Erin Cunningham contributed to this report from Cairo.