By Patrick Werr
CAIRO (Reuters) - Egypt has asked the International Monetary Fund for $3.2 billion in support, a government minister said on Monday, as the country's interim cabinet seeks to fill a budget gap pushed wider by almost a year of political and economic turmoil.
The previous army-backed government turned down an offer of $3 billion in financial assistance from the IMF last June, but since then the country's funding problems have worsened and its currency has come under heavy pressure.
"We have formally requested an IMF loan of $3.2 billion in support of a homegrown program that we're working to finalize right now," Planning and International Cooperation Minister Faiza Abu el-Naga told reporters.
She said Egypt wanted an agreement as soon as possible and hoped one would be finalized within a few weeks. It might eventually ask the IMF for more than $3.2 billion.
"We're flexible, and it may increase, and we have also discussed that possibility with the mission," she said on the first day of talks with fund officials visiting Cairo.
An IMF delegation is due to return to Egypt in late January. IMF regional director Masood Ahmed said many technical details of an agreement must still be resolved and this week's visit was to "hear and understand the Egyptian situation".
Foreign financial investors have given Egypt a wide berth since street protests erupted a year ago, forcing the government to rely on local banks for funds, a situation that has forced up yields on treasury bills and bonds to levels that some economists say are unsustainable.
The new negotiations take place as the ruling military council tries to fend off criticism of its temporary rule from pro-democracy groups and grapple with social tension caused by poverty and rising prices.
The new cabinet nominated in November needs to cut spending but risks further angering a population that depends on state subsidies and whose hopes for an improvement in living standards were raised by the uprising that ousted President Hosni Mubarak.
Abu el-Naga said the projected budget deficit was now 144 billion Egyptian pounds ($23.85 billion), or 8.7 percent of estimated gross domestic product. That compares to an official estimate for the previous year of 9.5 percent.
The IMF money would be disbursed over 18 months, she said. The interest rate would about the same as the 1.5 percent in the agreement that Egypt turned down in June, Ahmed said.
Without a financial lifeline from the IMF, it is unlikely that Egypt will be able to tap an international pool of aid agreed by donors in France last year for countries in the Middle East and North Africa, such as Egypt and Tunisia.
"We need other sources to fill the funding gap. In this we are interested in participation by the Gulf, whether amounts already announced by Saudi Arabia, UAE or Qatar, or by other partners such as the United States and the European Union," Abu el-Naga said.
She said Egypt might be forced to return to the IMF if the financing was not enough to plug gaps in its budget and balance of payments.
Yet there is no certainty that an agreement can be reached.
The IMF has insisted that any deal with Egypt needs to have broad political support, meaning it would be transferred easily into the hands of a successor government.
The Muslim Brotherhood, the Islamist movement that has emerged from a parliamentary election as Egypt's strongest political force, says it would consider supporting a deal for emergency IMF aid, providing there are no conditions attached.
($1 = 6.0375 Egyptian pounds)
(Writing by Patrick Werr; and Tom Pfeiffer; Editing by Diane Craft)