A turning point for the Egyptian economy?

After a year-long debate, Egypt's finance minister has finally persuaded Parliament to accept the terms of a desperately needed IMF loan.

The prolonged delay was the result of political squabbling between the Muslim Brotherhood's parliamentary affiliate the Freedom and Justice Party and the transitional cabinet. The Muslim Brotherhood felt that the transitional cabinet should not have a say in the long-term decision making process, including taking on substantial loans from foreign creditors.

As a result of the pervasive uncertainty that has engulfed the country from the Arab Spring, the economy has suffered . Growth remains anemic; the most recent available figures had the economy growing at a mere 0.3% clip for the period of July to September. Moribund growth in Egypt may be the norm for the short-to-medium term, as the economy is projected to grow only 1.6% for the fiscal year beginning on July 1st, 2012.

In light of these insipid growth projections, the agreement over the IMF loan is a vital step forward for the Egyptian economy, as the IMF's promised $3.2 billion will inject much needed capital into the economy and potentially result in higher GDP growth than has been prognosticated.

Although the IMF loan is a positive development for the Egyptian economy, it is no panacea. Inflation remains a problem, rising to 9.2% in February. Combined with slow growth, this has the potential to create a disastrous cycle of stagflation. Worries over upcoming labor strikes and political discord should also continue to pressure the Egyptian economy.

Those looking to trade Egypt should use the Market Vectors Egypt Index ETF ( EGPT , quote ). The IMF loan is a necessary step forward for the Egyptian economy; however, until political stability materializes, green shoots in the economy appear, liquidity issues are resolved , and inflation starts to come under control, investors should hesitate going long EGPT.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.