Egypt suspends tax rises, putting IMF loan at risk

President Mohamed Morsi suspended planned tax increases on Monday, shortly after they were formally announced, in a policy shift that could imperil Egypt's ability to secure a $4.8 billion loan from the IMF. Opposition groups, locked in a battle with the government over a constitutional referendum scheduled for Saturday, began attacking the tax increases on social media immediately after they were published in the official gazette at the weekend.
They include increases on the sales tax on goods and services that range from alcoholic beverages, cigarettes and mobile phone calls to automobile licences and quarrying permits. The taxes are thought to form part of an austerity package included in a programme the government has presented to the International Monetary Fund to win approval for the loan it is seeking to shore up finances battered by political turmoil.
"The next days are going to be decisive, not only about the political situation, but also whether the IMF loan can be secured," said a Western diplomat who follows the loan talks. The IMF wants assurances that Egypt is acting to cut a budget deficit running at 11 percent of gross domestic product. It is also worried about a decline in foreign currency reserves, which have plunged by $21 billion since the uprising that ousted Hosni Mubarak in February 2011.
Egypt has been spending reserves and borrowing from foreign governments to help support its currency. In November, reserves fell by $448 million to $15 billion, equivalent to barely three months' imports. Morsi "has decided to halt these decisions from taking effect," his official website said. "He has commissioned the government to hold an open social discussion led by specialised experts to find out how much popular support they have."
The IMF board is due to meet on December 19 to decide on the loan, which was agreed at the technical level on November 20. "Consideration of the agreement by the IMF Executive Board will require that there is no major change in the economic outlook and implementation plans," an IMF spokeswoman said last month, a week after many thousands of people took to the streets to protest at a decree by Morsi giving himself wide powers.