The International Monetary Fund said Thursday that Egypt's financial situation is deteriorating and the lending agency won't move ahead with a $4.8 billion loan until receiving updated economic information and reform plans from President Mohammed Morsi's government.
Negotiations have dragged on for more than a year for the crucial funding, which is expected to usher in unpopular austerity measures. But by building confidence, the money could open the door for more loans and investment.
IMF spokesman Gerry Rice told reporters that the agency was working with Egypt to ensure that the loan package would successfully address "rising fiscal and balance of payment imbalances" and lead to broad economic growth.
Strains in Egypt's economy include a widening budget deficit and shrinking foreign currency reserves.
The 2011 uprising that toppled Egypt's longtime autocratic ruler, Hosni Mubarak, dealt a blow to foreign investment and tourism, a main revenue source. Neither has recovered, with investors and tourists still scared away by unrest and political turmoil.
Egypt's budget deficit has surpassed 10 percent of gross domestic product. The finance minister has said the draft spending plan for the budget year beginning in July projects a deficit of $28.5 billion, which is about $1.7 billion more than this year.
With revenues down, the government is burning through its foreign currency reserves, which have fallen to just $14.4 billion, less than half of pre-uprising levels.
Much of the foreign reserves have gone to propping up the value of the local currency and importing fuel and wheat for the country's subsidy system. Egypt's poor rely on the subsidies for cheap fuel and food, but the assistance sucks up large portions of the budget.
The IMF loan has been delayed by months of negotiations over how Egypt will reduce the huge subsidies. The harsh austerity measures lack broad political and social consensus in the highly polarized country where nearly half of more than 85 million people live near or below the poverty line of $2 a day.
One of the difficulties in pinning down the loan package has been the flux in economic conditions amid political turmoil over the drawn-out period of discussions.
Rice said the IMF has not discussed or scheduled any future mission to Egypt as discussions have to take into account evolving economic conditions and the agency needs new economic data and the government's reform plans.
He also alluded to the political upheaval that has roiled Egypt, saying there needs to be broad consensus surrounding reforms the IMF deems critical.
"We stand ready to support a homegrown program that addresses the economic and financial challenges that Egypt is facing, that is socially balanced and has broad ownership so that it can restore confidence," Rice said.
Egypt's Islamist government, dominated by the Muslim Brotherhood group, has taken some limited steps toward economic reform. But some economists say it is postponing extensive reforms until after upcoming parliamentary elections to avoid austerity measures that could hurt Morsi's Brotherhood at the polls.
The problem is that no date has been set for elections, and they won't be held until the fall at the earliest.
Egypt has just finished a Cabinet reshuffle and one of the prominent changes was an overhaul of the government's economic team in an apparent bid to spur negotiations with the IMF.
Egypt and the IMF were close to a deal in December, but Morsi quickly rescinded planned tax increase and other measures in the face of public outcry. A burst of deadly street protests further set back the economy, forcing the IMF and Egypt to revise the economic forecasts that frame the deal.