Dr. Ali Abdel Aziz, the Prime Minister of the Shadow Government, said that the International Monetary Fund’s (IMF) loan to Egypt will affect negatively the country’s economy.
On his facebook account, Abdel Aziz criticized the absence of a national economic program for rationing consumption and outlined the points of objection to the loan as follows:
Firstly, the US$ 4.8 billion loan has a 1.1% interest rate and a payment period of 5 years as well as a grace period of 39 months. Egypt will pay the repayment installments after that period. The value of the accrued interest for five years will be US$ 152 million (EGP 912 million). The Cabinet told the IMF to name the interest rate as administrative costs instead, but they will be paid over installments, meaning that the difference is only in the name.
Secondly, the Freedom and Justice Party (FJP), the political arm of Muslim Brotherhood, was strongly against foreign borrowing during Al Ganzouri’s Cabinet. FJP’s leaders had said several times that they reject foreign borrowing which would impose huge burdens on next generations and tough financial restrictions on the next president. The party said also it rejects foreign intervention by IMF in the Egyptian policy. However, Hesham Kandil, the new Prime Minister appointed by Mohamed Morsi, began talks with IMF over the loan.
Thirdly, the value of the loan was raised from US$ 3.2 billion to US$ 4.8 billion and interest rate was reduced from 1.1% to 1.2% with grace period of 39 months and repayment period of 5 years, under Morsi’s rule.
Fourthly, Financial Times Newspaper has affirmed that the IMF conditions on Egypt narrowing the country’s budget deficit through increasing revenues and decreasing subsidies on food and energy. The value of the loan is US$ 4.8 billion (EGP 30 billion) and this will do nothing to the budget deficit which is US$ 23 billion (EGP 135 billion).
Fifthly, Kandil’s cabinet did not announce till now neither a national economic reform plan nor a strategy for narrowing the budget deficit. Kandil did not also say how the loan will be disbursed and whether it will be used for financing budget deficit or investment projects.
Sixthly, Egypt’s foreign debt is US$ 36 billion and local debt is more than EGP 1000 billion. IMF’s loan will increase Egypt’s debt and shake investors’ confidence in the Egyptian market, unlike some people claim that the loan will be considered a testimony from the international financial institution that proves Egypt’s strong financial position and ability for repayment. Investors will be confident in the Egyptian market when the Cabinet begins depending on local resources and restructuring the budget which was set by Al Ganzouri. This budget allocates EGP 93 billion as energy subsidies for businessmen with an increase of 20% before 2011’s revolution and about EGP 20 billion as salaries for 17,000 consultants in the administrative body of the government.
Seventhly, Al Nour Party and Freedom and Justice Party said that the loan has no interest rate as they claim that it has instead administrative costs. Abdel Aziz affirmed that the difference is only in the name as the loan has an interest rate of 1.1% which is considered usury and prohibited in Islam.
Abdel Aziz, then, referred to the campaign that was launched by Egyptians calling for replacing US aid with “Egyptian aid”, asking where have the millions of pounds, which were earlier collected from Egyptians, gone?
