IMF and Egypt delay vital $4.8 billion loan

As protest slogans and gunfire rang out in Cairo on Tuesday, Egypt's government and the International Monetary Fund (IMF) agreed to delay a vital $4.8 billion dollar loan intended to bolster Egypt's anemic economy, still reeling from last year's uprising.

On Monday, Egypt's President Mohamed Morsi said he would not raise taxes after opponents criticized his tax plan. Reuters says tax hikes on alcohol and tobacco and other goods and services were key for the loan deal.

"The IMF board was supposed to review Egypt’s request Dec. 19 and it has been agreed with the fund that this be delayed to the following session, most likely mid-January,” Egyptian Finance Minister Momtaz el-Saieed told Bloomberg Bussinessweek.

“We have an Egyptian economic and social program, and it seems that some have misunderstood the measures, so the president decided to give more time for social dialogue to stress that the measures won’t harm people with limited income,” he said.

Simon Williams, an HSBC economist in Dubai told Reuters the delay was expected.

"Given the current policy environment, it's hardly a surprise that there's been a delay." But, he added, "Egypt urgently needs that IMF accord, both for the funding it brings and the policy anchor it affords."

Mona Mansour, chief economist at Cairo-based investment bank CI Capital Holdings told Bloomberg Bussinessweek a similar story.

“The delay is alarming given Egypt’s current economic woes and means that political uncertainty could lead to further delays," Mansour said. “This will add further pressure on reserves and further depreciation of the Egyptian pound is expected.”

The Wall Street Journal points out that from October, Egypt's foreign international reserves fell by $449 million.