IMF hopes to sink claws into Egypt

The new government of President Mohammed Morsi is seeking a rescue package for its faltering economy.

But IMF intervention raises the possibility of painful restructuring in a country still reeling since its revolution more than 18 months ago.

The loan deal, which Egypt says it will reach by the end of the year, presents a major test to President Morsi.

The IMF has not yet specified conditions for a loan but it is seeking a government plan for restarting economic growth and reducing a deficit that has grown to £14.8bn, 8.7 per cent of gross domestic product.

And its track record suggests that swingeing cuts and economies will be demanded.

A key part of that will almost certainly be reducing subsidies that absorb a third of the government budget every year.

Touching those subsidies, however, could bring social upheaval, since they keep commodities like fuel and bread cheap for a population of around 82 million, 40 per cent of whom live near or below the poverty line.

The biggest subsidies are those on fuel, including petrol and cooking gas, costing the government around £10bn a year.

The government also faces mounting demands to increase salaries for the millions of civil servants and public-sector workers and boost social spending.

Infrastructure has crumbled, with electricity and water cuts fuelling popular anger.

President Morsi, Prime Minister Hesham Kandil and other Egyptian officials met IMF chief Christine Lagarde in Cairo.

Ms Lagarde's visit "gives a positive message to Egypt and the whole world that Egypt is stabilising and that the economy is heading to a recovery," claimed Mr Kandil.

He said his government has drawn up a comprehensive economic recovery plan for the IMF that includes strategies to counter the deficit, encourage investment and ensure that subsidies reach those most in need.

But he did not provide the details.

But Ms Lagarde warned that "Egypt faces considerable challenges.

"Getting the country's economy back on track and raising the living standards for all will not be an easy task."