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CAIRO (AP) â¿¿ Egypt's political crisis is threatening to plunge its ailing economy even deeper into distress after the government delayed a request for a $4.8 billion loan from the International Monetary Fund that would have eased a ballooning budget deficit and reassured foreign investors.
Fear of stoking the street unrest over a disputed Islamist-oriented constitution led President Mohammed Morsi to suspend a package of tax hikes that were key to reducing that deficit â¿¿ and his government may now have to renegotiate the loan deal that took more than a year to hammer out.
While the government said it wants to delay the request for only a month, the IMF the mentioned no timeframe in its statement on Tuesday, saying only that it stands ready to "consult with the authorities on the resumption of discussions."
That raises the possibility that the loan may be put off until the political situation stabilizes, and so far protests have shown no signs of abating. Tensions have risen ahead of Saturday's constitutional referendum, with Morsi's opponents calling for Egyptians to reject the charter.
"It's a serious blow to hopes that the economy will get back on track â¿¿ the country really needs a financial backstop to convince investors to bring back much-needed capital," said Neil Shearing from research consultancy Capital Economics in London.
"There can be no progress on the economy until the politics can be settled, and there is clarity about the direction of the government, the constitution and parliament," he added.
The tax hike was seen as a key first step in an economic reform package needed to generate revenue and meet conditions for the loan, agreed in principle with the IMF in November.
The government has said a dialogue with economists and interest groups would begin about the hikes next week. The increases, on goods including alcohol, cigarettes and cooking oil, are likely to be highly unpopular, and the opposition has used them to rally Morsi's opponents.