Egypt faces a struggle to secure a US$3.2 billion International Monetary Fund aid package that economists say is crucial to averting a balance of payments crisis and which, even if it is obtained, could prove to be too little, too late.
A year of political and economic turmoil has pushed up unemployment in Egypt, widened its budget and balance of payments deficits, and drained its foreign reserves. Many economists believe a currency devaluation is imminent.
Egypt announced last week that it had formally asked the IMF for a $3.2 billion loan, saying it wanted the money as soon as possible and hoped an agreement would be signed within weeks.
The IMF, however, says any agreement will first have to attract broad political support within the country and be accompanied by financial commitments from other international donors. Thrashing out the technical details of a loan will take two to three months, it said.
Egypt may not have that much time.
"I think two to three months is walking a very thin line. They can make it, they have sufficient reserves, but two to three months is pushing it," said Raza Agha, an economist with British bank RBS.
It may not be easy to convince foreign donors to lend money to Egypt until they see how the government looks after a presidential election expected in June.
Nor will it be easy to get broad political support for an agreement that may involve Egypt making economic policy pledges to the IMF — especially since political parties will be jockeying for position in the country's first freely elected Parliament in 60 years, which held its first session on Monday.
The stakes for Egypt's economy are high. The central bank, trying to keep the Egyptian pound stable against the dollar, has run through $9 billion of its foreign reserves since June, when the government rejected an IMF agreement similar to the one it is now seeking.
The depletion accelerated before the parliamentary election and during a series of violent political protests in November and December, with the central bank spending at least $2 billion in each of the last three months. By the end of December, reserves had fallen to a dangerously low $18 billion.
Analysts say the government may be forced to devalue the currency against the dollar in coming months, perhaps in a one-off decrease, but that an IMF agreement would give it enough financial firepower to engineer a limited, controlled devaluation.
Since the uprising against Hosni Mubarak erupted a year ago, the currency has fallen by less than 4 percent, to 6.04 against the dollar, despite sharp contractions in tourism and foreign investment, two of Egypt's main sources of foreign exchange.
"We think some devaluation will happen. The danger of that is a disorderly one, as opposed to one that is managed by the government and the IMF," Said Hirsh of Capital Economics said.
"If the devaluation is orderly, the pound could fall to, say, 7 to the dollar. In the case of a disorderly one, you could see the pound fall to 8 per dollar or more. That will obviously be accompanied by interest rate rises and an economic crisis."
JPMorgan said in a research note that it believed the government would continue to defend the currency by way of higher interest rates, the sale of dollar-denominated Treasury bills, and possibly with administrative measures.
The central bank has been making it harder for Egyptians to buy dollars. This month it tightened procedures for importers who want to send funds abroad, requiring more documentation to show the transactions are legitimate.
Egypt may also face problems convincing foreign donors to extend financing as long as its politics remain unsettled.
Cairo has received in-principle offers of budgetary support and other aid totaling well over $10 billion from Qatar, Saudi Arabia, the United Arab Emirates and other countries, but actual aid flows have been slow to arrive.
A Western diplomat said Egypt's military-backed government had last summer declined any loans from Gulf states, and only accepted a total of $1 billion in outright grants from Saudi Arabia and Qatar.
Egypt's diplomatic and economic policies will not be entirely clear before a new constitution is drawn up over the next few months and the presidential election is held — and maybe not even then.
"Donors may stay away till there's a full-fledged government in place. Think of it from the Saudi or the Qatari or any other donor's perspective," Agha said.
"Do you really want to shell out billions of dollars when you are not sure what the policy stance of the incoming prime minister or president will be?"
During Egypt's delicate transition to democracy, political parties will not want to be saddled with responsibility for an IMF accord that is unpopular on the streets. So any IMF package is certain to come under intense scrutiny in a Parliament full of new deputies who have shown they are eager to challenge the government and show their democratic credentials.
The Muslim Brotherhood, which won almost half the seats in the new Parliament, has said it would consider supporting an IMF deal providing there were no conditions attached and alternatives were explored first.
But analysts said that in the short term, the Brotherhood might find it dangerous to endorse a deal while it worked to build political coalitions and maneuvered for a strong position in the government that will be formed after the presidential election.
In the medium term, the Brotherhood may prove far more amenable, however. Some officials in the movement have said they are looking to Turkey as a model for governance and economics in Egypt.
Cem Akyurek, an Istanbul-based economist with Deutsche Bank, said that instead of an 18-month IMF program worth $3.2 billion, Egypt would be wise to follow Turkey's example a decade ago and seek a bigger program to assist its economic reforms, perhaps a deal involving three years and a much bigger amount of money.
"Turkey did wonders with the IMF program, and for many, many years it was the example country in terms of implementation, adhering to fiscal discipline and so on," Akyurek said. "$3.2 billion will be a fraction of what Egypt needs to generate growth in the economy."