A vital $4.8-billion International Monetary Fund loan to Egypt will be delayed until next month, its finance minister said on Tuesday, intensifying the political crisis gripping the Arab world's most populous nation.
As rival factions gathered in Cairo for a new round of demonstrations, Finance Minister Mumtaz al-Said said the delay in the loan agreement was intended to allow time to explain a heavily criticised package of economic austerity measures to the Egyptian people.
The announcement came after President Mohamed Morsi on Monday backed down on planned tax increases, seen as key for the loan to go ahead. Opposition groups had greeted the tax package, which included duties on alcoholic drinks, cigarettes and a range of goods and services, with furious criticism.
"Of course the delay will have some economic impact, but we are discussing necessary measures (to address that) during the coming period," the minister told Reuters, adding: "I am optimistic ... everything will be well, God willing."
Prime Minister Hisham Kandil said Egypt had requested that the loan be delayed by a month.
"The challenges are economic not political and must be dealt with aside from politics," he told a news conference.
Mr. Kandil said the reforms would not hurt the poor. In a bid to rebuild consensus, he said there would be a national dialogue about the economic program next week.
Meanwhile, the head of Egypt's key association of judges says 90 per cent of its members have voted not to oversee Saturday's nationwide referendum on the country's contentious draft constitution.
Ahmed el-Zind, the chairman of the Judges' Club, announced the decision on Tuesday.
The move is unlikely to stop the referendum from taking place, but it casts further doubt on the legitimacy of the constitutional drafting process.
Mr. Morsi's deputy has said that if there are not enough judges to oversee the referendum, the vote can be staggered over several days. A faction of judges loyal to Morsi has said it would not boycott the vote.
Egypt is sharply divided and polarized over the draft constitution, which was hurriedly approved by an Islamist-dominated constituent assembly despite an opposition boycott.
On the streets of the capital, tensions ran high after nine people were hurt when gunmen fired at protesters camping in Tahrir Square, according to witnesses and Egyptian media.
The opposition has called for a major demonstration it hopes will force Mr. Morsi to postpone a referendum on a new constitution.
Thousands of flag-waving Islamist Morsi supporters, who want the vote to go ahead as planned on Saturday, assembled at a nearby mosque, setting the stage for further street confrontations in a crisis that has divided the nation of 83 million.
The upheaval following the fall of Hosni Mubarak last year is causing concern in the West, in particular the United States, which has given Cairo billions of dollars in military and other aid since Egypt made peace with Israel in 1979.
The turmoil has also placed a big strain on the economy, sending foreign currency reserves down to about $15 billion, less than half what they were before the revolt two years ago as the government has sought to defend the pound.
"Given the current policy environment, it's hardly a surprise that there's been a delay, but it is imperative that the delay is brief," said Simon Williams, HSBC economist in Dubai. "Egypt urgently needs that IMF accord, both for the funding it brings and the policy anchor it affords."
The IMF deal had been seen as giving a seal of approval to investors and donors about the government's economic plans, vital for drawing more cash into the economy to ease a crushing budget deficit and stave off a balance of payments crisis.
In central Cairo, police cars surrounded Tahrir Square in central Cairo, the first time they had appeared in the area since Nov. 23, shortly after a decree by Mr. Morsi awarding himself sweeping temporary powers that touched off widespread protests.
The attackers, some masked, also threw petrol bombs that started a small fire, witnesses said.
"The masked men came suddenly and attacked the protesters in Tahrir. The attack was meant to deter us and prevent us from protesting today. We oppose these terror tactics and will stage the biggest protest possible today," said John Gerges, a Christian Egyptian who described himself as a socialist.
The latest bout of unrest has so far claimed seven lives in clashes between the Islamist Muslim Brotherhood and opponents who are also besieging Mr. Morsi's presidential palace.
The elite Republican Guard which protects the palace has yet to use force to keep protesters away from the graffiti-daubed building, now ringed with tanks, barbed wire and concrete barricades.
The army has told all sides to resolve their differences through dialogue, saying it would not allow Egypt to enter a "dark tunnel". For the period of the referendum, the army has been granted police powers by Mr. Morsi, allowing it to arrest civilians.
The army has portrayed itself as the guarantor of the nation's security, but so far it has shown no appetite for a return to the bruising front-line political role it played after the fall of Mr. Mubarak, which severely damaged its standing.