Analysis - Egypt rejection of IMF cash may slow recovery
By Patrick Werr
CAIRO (Reuters) - Egypt's decision to scrap plans to borrow from the International Monetary Fund may slow an economic recovery, delay a solution to a potential fiscal crisis and make it harder for future governments to access credit.
Egypt had sealed a $3 billion (1.9 billion pound) financial package on June 5 to shore up its finances after the protests that ended Hosni Mubarak's 30-year rule scared away tourists and investors, two of its main sources of foreign exchange.
But over the weekend, Finance Minister Samir Radwan said Egypt would not need to borrow from the IMF or the World Bank, which had also offered a large lending package, asserting that the shortfall could now be covered locally and from foreign aid.
"It is totally unwise for them to refuse this IMF money," said one Western banker. "Even if they had been promised (funds) from other sources to fill external and fiscal gaps, it would have been a lot better for them to depend on the IMF."
He said IMF guidance would have reassured other investors.
But Egypt's ruling army council, which took control after Mubarak, may be reluctant to be tied even to the lenient terms offered by the IMF as it seeks to avoid any foreign interference after Egyptians toppled Mubarak who had close ties to the West.
Egyptian credit default swaps were trading at 308.7 on Tuesday, up from 304.7 on Friday, according to data provider Markit. They rose as high as 441 in late January as the revolt against Mubarak was growing.
The yield on Egypt's 5.75 percent, 10-year dollar bond was at 5.759 percent, up from 5.701 on Friday. Continued...