International Monetary Fund approval of Egypt's request for nearly US$5 billion in aid would come as a vital boon to its reeling economy but President Mohamed Morsy must at the same time enact tough reforms, analysts say.
An economic slump following the February 2011 resignation of Hosni Mubarak aggravated the main problems inherited from his regime: budget-draining subsidies, extreme social inequality, corruption and poor energy infrastructure.
A chief concern is the decline in Central Bank reserves which have plunged from $36 billion at the start of January 2011 to $14.4 billion, threatening Egypt's ability to import basic goods such as wheat and refined oil products.
The budget deficit is projected to increase by 12.5 percent over the fiscal year from July 2012 to July 2013, to about $22.5 billion, official figures show.
Tourism, one of the main sources of revenue and a job provider for 10 percent of the population, has made a modest recovery but security concerns still keep the bulk of visitors at bay.
"Much-needed" support from international lenders "could weaken if the Egyptian authorities are unable to effectively address ongoing economic, fiscal and external challenges," Standard and Poor's warned on Thursday.
SP also said it was keeping Egypt's foreign and local currency sovereign credit ratings at 'B/B' because the "outlook is negative" in light of social and political tensions.
But the agency also removed the ratings from CreditWatch in a nod to the working relationship between Morsy, who emerged from the Muslim Brotherhood, and the military after the removal of its chief, Field Marshal Hussein Tantawi.
IMF director general Christine Lagarde, who was presented with the $4.8 billion loan request during a visit to Cairo this week, said the lender "will accompany Egypt" as it undertakes its challenging journey of reform.
But Lagarde made no firm commitments, saying that the amount, details and terms of the loan program — which Cairo hopes to seal by the end of the year — were still under discussion.
The IMF chief said its support was to be accompanied by an Egyptian economic program incorporating fiscal, monetary and structural measures, which she said would require "determination" and "political courage."
Some Egyptian commentators doubt that the new authorities could use this loan to sustainably improve the economic conditions of the population.
"This credit is intended to cover expenses [wages, food imports] … to allow the Muslim Brotherhood to comfortably reach the upcoming elections and to calm the economic situation," writes Ibrahim Eissa of Al-Tahrir newspaper.
In the end, "it is the Egyptian people who will cough up" the money to repay the loan, he says.
Ahmad Galal, an analyst at the Economic Research Forum, estimates that Egypt needs $10 billion to begin to stem the crisis, and will have to obtain "other resources" in addition to the $4.8 billion requested from the IMF.
But the effort also requires deep internal reforms to be implemented over the years to come.
"In the short term, we must stimulate economic activity and create jobs. In the medium term, it is necessary to reform the education system, upgrade infrastructure and tackle the informal sector," among other steps, he said.
Economist Angus Blair, founder of the Signet Institute in Cairo, told AFP that "sorting out the [petrol and gas] subsidies program to make sure it is better targeted" should be a top priority, along with encouraging investment.