Egypt Makes Eyes at the IMF but is it Ready for Tough Love?

The trickle of reforms coming out of Cairo in recent weeks have been pitched to the broader international community, but there's a certain special someone that Egypt hopes is paying attention.

That just happens to be the International Monetary Fund, an elusive suitor that Egypt craves longingly.

Following years of political turmoil and social upheaval, Egypt's coffers are almost empty. Its foreign exchange reserves dwindled under its last President Mohamed Morsi, as much of the world turned its back on the Islamist president's experiment in governance.

While his ousting led to an inflow of aid money from a trio of gulf states, Saudi Arabia, Kuwait and the United Arab Emirates, Egypt really wants the long term massive cash injection that only the Washington-based fund can offer.

Getting the IMF to strike a deal will take some heavy lifting from the Egyptian government on austerity. Past leaders have spoken of the need for serious economic reform and Morsi dabbled with austerity before he was removed by a combination of popular will and military muscle last summer.

The message coming from Cairo these days is that the government is prepared to take the tough measures to secure the country's economic future. Fully aware that its mandate will run out upon the election of a new president in May's election, the interim regime is using its position to push through subsidy cuts.

Electricity, gas and bread are on the menu. The three industries have been heavily subsidised for decades and Egypt's interim President has targeted them all. However, the proposals are far from the hard-hitting cuts that the IMF would like to see before committing to an aid package.

First, the electricity reforms promised to target the richest 20% of Egyptians. Planning minister Ashraf al-Arabi sounded a tough note when he spoke to the press at an IMF – World Bank meeting this month.

"This energy subsidy system is unsustainable; we cannot afford [for] this to continue," al-Arabi said.

He went on to say the price hikes would be introduced gradually over a period of three to five years, while 15% of the cost savings would be used for social programmes that benefit the poorest Egyptians.

Since the initial announcement, the policy has remained vague, with no specifics on dates or figures released. Although the IMF will be encouraged at the seeming willingness to reduce state spending on energy subsidies, it will not be enough to persuade the IMF that Egypt is serious about reform.

The same can be said for the announcement on gas price hikes. The move to double the price of gas on the national grid sounds more radical than it is.

Most Egyptian citizens are not connected to the grid – instead they buy butane gas cylinders on the street to use for cooking. The hike will not affect Egypt's electricity generation sector, the country's largest consumer of gas. Bakeries are also exempt, meaning that only a small number of properties connected to the grid will be affected.

Indeed the measure is only expected to save the government around 1 million Egyptian pounds ($140,000, £85,000, €100,000) per year from its 130 million Egyptian pounds spending on energy subsidies. That number will have to increase sharply if Egypt expects to win support from the Fund.

The subsidy that strikes most fear in to the heart of an Egyptian leader is undoubtedly that on bread. Memories of the bread riots in 1977, are still fresh in Cairo, when hundreds of thousands of Egyptians took to the streets and dozens were killed.

That explains the timidity with which leaders have attempted to reduce the subsidy.

Currently, citizens can pick up bread for less than 1 American cent per loaf with no limit on the number purchased. A new smart card scheme will allow each citizen to pick up 150 loaves each month at this rate.

Egypt's Minister of Supply, Khaled Hanafi said the measure would prevent subsidies from "being wasted and leaked".

While that may strictly be true, it is not going to be enough to woo the IMF. Indeed all the above measures are too small to make a serious dent on Egypt's bloated subsidy spending.

However, if they mark a springboard for the next president to push through tougher reforms, then they will have served a purpose. But that won't be clear until the next president is in the hot seat.