The saving of Egypt

Posted on July 18, 2011

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The world is rushing to save Egypt’s economy. No strings attached?

Egypt is a critical component of the regional economy. This was brought into sharp focus over past two months, over which period the nation sought and received billions of dollars in financial assistance from its Gulf neighbors. The latest nation to respond to Egypt’s need for cash is the UAE, whose president pledged USD3 billion in assistance.

This follows substantial pledges from Saudi Arabia, Qatar and other regional countries. Egypt is looking to cover a 2011/2012 budget deficit of EGP134 billion, or 8.6% of gross domestic product, mostly from “the local market”, according to Finance Minister Samir Radwan said. “The local market will cover EGP120 billion,” he said early this week, and added that Egypt needs to raise an additional EGP14 billion in aid from Arab countries to cover the rest.

Last month, Egypt said it had decided not to proceed with an earlier request for loans from the International Monetary Fund and the World Bank, after the country’s ruling military council decided it did not want to take on additional foreign borrowing. The government also wanted to avoid any conditions that might be applied to the lending. The IMF had been due to approve a 12-month stand-by agreement with Egypt worth USD3 billion at a board meeting in July. And the World Bank said in May it would provide up to USD4.5 billion to Egypt over the next two years. The IMF has denied that its assistance came with “too many strings attached” and “hidden or unannounced conditions”.

The Gulf nations have a clear motive in supporting Egypt. The Gulf Cooperation Council is in the process of increasing its sphere of influence in the region. Jordan and Morocco have already applied to join the bloc and Egypt would add tremendous economic weight. What’s most important, however, is that regional political and economic stability be maintained. Investment that helps to create jobs and fulfill the personal ambitions of the youth is perhaps more important than financial assistance.

More intelligence on Egypt’s economic affairs:

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Posted in: Economy