by Marwa Yahia
CAIRO, Jan. 7 (Xinhua) -- As Egypt's talks with International Monetary Fund (IMF) for a 4.8 billion U.S. dollars loan are set to resume on Monday, many consider the approval of the loan relied on Egyptian government's ability to overcome the worsening economic crisis and fulfill financial obligations.
IMF official and technical staff will visit Egypt on Monday to discuss the loan, Egyptian Prime Minister Hesham Qandil said Sunday, stressing that his government will reassure the delegation about the country's economic situation and methods of improvement.
Whether Egypt could obtain the loan, depends on whether the Egyptian government could rationalize spending and increase revenues, said Mohamed Abdel Aziz, professor of funding at the American University in Cairo.
Abdel Aziz told Xinhua that the loan aims at helping Egypt deal with economic crisis, with the amount equal to Egypt's share as an IMF member, therefore there should not be hard strings attached to the deal.
"I expect the Fund will finalize the agreement without constraint," he said, noting that the IMF will ask for a program that guarantees Egyptian steps to reduce budget deficit.
In light of the economic crisis, the IMF is bound to study the Egyptian government's program carefully in terms of the volume of financial liquidity and Egypt's abilities to provide it in the future, Abdel Aziz noted.
As for whether the loan could help Egypt at this time of soaring budget deficit and decreasing currency reserve, Abdel Aziz said "the loan will provide the government with liquidity, by which it could minimize the budget deficit with its very low interest rate of 1.1 percent."
Securing the loan will help Egypt get more loans from IMF instead of other institutions, he added.
If the loan is approved, the eight biggest countries, particularly the United States, will provide Egypt with aids.
The IMF loan depends on Egyptian Central Bank's procedures to float the currency and Egyptian government's measures to deal with budget deficit and taxes, said Hamdy Abdel Azim, economic professor in Sadat Academy.
"When IMF sees effective procedures by the Central Bank to administratively float the currency, it will approve the loan," Azim told Xinhua.
Azim said Egypt should abide by the IMF's conditions, which include reducing governmental expenditures, increasing taxes and freeing local currency.
According to Azim, the loan will improve economic conditions in Egypt and push other granting countries to provide Egypt with long term loans.
The professor expected the IMF would grant Egypt the loan, but he did not preclude an increase in the interest rates, due to the downgrade of Egypt's credit rating from B to B-, which means increasing profit ratios over foreign loans.
On Nov. 20 last year, the Egyptian government and IMF reached a preliminary agreement, which was expected to be signed in December but was delayed due to political turmoil after Egypt's President Mohamed Morsi issued a constitutional declaration granting him sweeping powers.
Due to expanded budget deficit, increasing local and foreign debt, and local liquidity shortage, Qandil termed the financial crisis as "a chronic problem," while former finance minister Momtaz el-Saaed described it as "a big economic deadlock."
The country is facing now a 42-percent budget deficit according to Qandil, which is expected to vary between 30 billion and 32.5 billion dollars by the end of fiscal year 2012/2013 which ends in June 2013.
In a recent statement, the Central Bank of Egypt (CBE) warned that Egypt's reserves of foreign currency had reached an alarming level, falling from 36 billion dollars to 15 billion dollars over the past two years.
However, the bank has recently used a new mechanism to slow bleeding in the currency reserve though dollar auctions.