These are the five best stories on the repercussions of Egypt’s delay of a $4.8 billion loan from the International Monetary Fund:
1. The Wall Street Journal’s report uncovers rifts and miscommunication between the presidency and the prime minister’s team. An interview with Abdallah Shehatta, a former IMF fiscal policy analyst and the chairman of the economic committee in the Brotherhood’s Freedom and Justice Party revealed that confusion over the tax decree which was subsequently postponed “stemmed from cracks in the delegation of executive power”.
Mr. Morsi’s prime minister announced the decision without consulting the presidency, he said, forcing Mr. Morsi to reverse the decision hours later.
2. Bloomberg’s summary of events illustrates Morsi as a man focused on defusing a resurgent protest movement rather than the economy. Most importantly, the inability to implement vital reforms including additional taxes shows a weakness in the Egyptian government, analysts told Bloomberg reporters:
Even if an IMF deal does go through, Mursi’s U-turn on taxes suggests it will be hard for his government to stay on the program, said Raza Agha, chief regional economist for VTB Capital Plc in London. IMF loans typically set conditions for the disbursement of each tranche of cash.
Achieving “targets and reform measures in the current political environment will be extremely difficult,” Agha said. “This could well threaten the program itself.”
3. The IMF loan is inherently linked to other loans to Egypt. The African Development Bank has been the first to say its $500 million loan is contingent on the country’s negotiations with the IMF, Bloomberg reported. This situation also applies to other loans from the European Union.
4. Egypt’s finance minister Mumtaz al Saeed told Reuters:
“Of course the delay will have some economic impact, but we are discussing necessary measures [to address that] during the coming period,” he said. “I am optimistic … everything will be well, God willing.”
Doesn’t fill you with confidence.
5. Finally, the Financial Times’ report offers a glimpse of what could happen in the next round of negotiations:
Analysts say that when Egypt goes back to the Fund it will have to renegotiate the terms of the deal because its macroeconomic outlook will have changed.
“The agreement was based on particular targets to be met before going to the IMF board and plans for meeting other targets in the future,” said Alia Moubayed, senior economist at Barclays. “Given the worsening economic and investment climate, achieving these targets is not any more feasible, so they will have to set new ones.”
The loan, which is likely to be delayed by (at least) a month, is a catalyst for economic reform in Egypt and a vote of confidence for foreign investors.
Egypt’s decision to delay on its best chance of recovering from a balance of payments crisis is also likely to be putting pressure on Morsi’s most loyal supporters.
The president’s backing of some high-ranking Muslim Brotherhood officials is not necessarily contingent on his reaction to protests, or even getting a new constitution, but on setting down the economic pillars of recovery such as the IMF loan.
These Brotherhood advisors and businessmen are the main channel of communication to the secular and business community in Egypt and abroad. But as Morsi turns his back on loan negotiations, the loyalists may be questioning his motives and simultaneously attempting to smooth over ties with foreign investors and diplomats keen to see Egypt back to business. That could be straining the relationship between Morsi and his advisors, as he focuses on political motivations ahead of the referendum on Saturday, when Egyptians vote on the draft constitution.
It is, after all, very rare for a nation to postpone a deal with the IMF so soon after it has made a public announcement.
That begs the question of whether the delay was really the Egypt government’s decision or whether the IMF was actually unwilling to lend at such time of political crisis.