Egypt: Political Considerations of a Loan Delay

Egypt's Islamist-led government is now in a race to resolve a political crisis, push through a constitutional referendum and regain the parliament before the country's economy worsens even further. The Muslim Brotherhood and Egyptian President Mohammed Morsi are betting that they can achieve their immediate political goals without risking too much on the economic front. This is why Egypt decided to postpone a $4.8 billion loan agreement with the International Monetary Fund on Dec. 11. While the economic situation in Egypt is hardly encouraging, a one-month delay in loans will not bring about economic collapse.

The government said it wanted an extra month to explain its new economic program, which includes tax hikes on consumer goods and services and subsidies reductions, to the media and to the public. Revenues from a new tax regime would provide Cairo with much needed capital. But amid the ongoing political crisis and just days ahead of a Dec. 15 constitutional referendum, the Islamist-led government is trying to deprive its political opponents of ammunition they could use against it. More important, the government wants to avoid undermining its own support base with a platform of unpopular tax hikes, many of which were reversed by Morsi on Dec. 10.