While much of the economic community’s attention is focused on ailing Europe, the fact that Egypt is seeking a €3.8bn loan makes it clear that financial troubles are not limited to just our continent.

Just like Ireland, Greece, Portugal, Spain, Cyprus and others have resorted to taking emergency loans, Egypt is doing the same. Only 18 months after its revolution, Egypt’s economy has faltered badly, mainly because its tourism product has collapsed.

But just like the troika (the European Central Bank, the European Commission and the International Monetary Fund) insisted that European nations stick to a restructuring plan in return for loans, the IMF is doing the same with Egypt.

The plans will be seen as a test for Egypt’s new Islamist Prime Minister, Mohammed Morsi, due to the IMF seeking a cohesive government plan for restarting economic growth and reducing a deficit that has grown to €18bn billion, some 8.7% of gross domestic product.

While Egyptians have regained, in a sense, their freedom, they also have to accept that the former regime kept in place subsidies that kept the masses ‘happy’. There are massive subsidies on fuel, bread and power – and some 40% of the 82 million population live near or below the poverty line.

Cairo-based economists predict that urgent measures are needed and these might include removal of the said subsidies. But at the same time, they fear that such measures will cause drastic upheaval. All the same, subsidies account for some €12bn of the government’s budget each year.

Foreign investment has also dried up in the wake of the almost constant instability which is blighting the country. Tourism revenue fell by 30% to €7bn in 2011 and recovery is negligible.

Egypt is currently surviving by dipping into its foreign reserves – which have plummeted by more than half – in order to prop up the Egyptian pound. Egypt is desperate to avoid inflation, but there are now increasing calls to boost salaries and social spending. But rather, it seems that the more realistic option would be to devaluate the Egyptian pound.

Egypt’s hope is that the IMF package – its first loan from the organisation in nearly 20 years – would provide not only a cash boost but, more importantly, a seal of approval that will bring back international investment.

IMF chief Christine Lagarde said “Egypt faces considerable challenges” and added that an IMF team would start talks in September with the government over its recovery plan and the loan.

Initial talks over the loan stalled earlier this year amid wrangling between the military generals who ruled the country since Mubarak’s ouster and Islamists who won the majority in the now-dissolved parliament. The Brotherhood had opposed letting the interim, military-appointed government sign a deal putting financial burdens on the next government. The IMF insisted on political consensus before approving the loan.

Since then, Morsi was inaugurated in late June and a month later formed the Cabinet, and the military handed over authority.

The IMF loan will not be enough to cover all Egypt’s financing needs. IMF officials said earlier that the country needs a total of €8-10 billion in outside funding over the next 12 to 15 months.