Egypt is betting on aid from its oil-rich Arabian Gulf neighbours to spur its ailing economy, ending a two-year pursuit of an IMF loan it had touted as vital to regaining investor confidence.
The government has announced approval of a 22.3 billion Egyptian-pound (Dh11.75bn) stimulus package after securing US$12 billion in aid pledges from the Gulf last month. Egypt doesn't "currently have the desire or the need to ask for assistance from the IMF," the finance minister Ahmed Galal said.
Saudi Arabia, the UAE and Kuwait rushed to aid Egypt following the military's removal of Mohammed Morsi from the presidency last month.
Almost three years after Egypt's 2011 revolt, the country's economy is struggling with growth at just a third of the 6.2 per cent it averaged in the last five years of former president Hosni Mubarak's three decades of rule.
Gulf aid "alleviates the risk of an immediate crisis," said William Jackson, an emerging-markets specialist at Capital Economics. In the longer term, the abandonment of IMF talks was "worrying, because it reduces the need for authorities to make painful reforms such as fiscal consolidation and allowing the pound to weaken to a more competitive level".
The government, battling a budget deficit that ballooned to 14 per cent in the year to June from 11 per cent a year earlier, is considering economic reforms. Measures being studied included a value-added tax, limited tax exemptions for informal businesses to encourage registration, and widening the use of electronic cards to control distribution of subsidised fuel, Mr Galal said.
Gulf funds, of which $5bn arrived last month, helped to replenish Egypt's foreign-exchange reserves to $18.9bn, the highest level in 20 months, and pare the decline of the Egyptian pound, which has dropped 11 per cent since December.
Of the total sum pledged, $6bn are interest-free deposits with the central bank that will be added to reserves, while $3bn in grants will be invested in infrastructure projects, Mr Galal said.
The remaining $3bn would be in the form of petroleum products to cover local demand. The finance ministry said yesterday there were "signs of further financial support" from Arabian Gulf nations.