Successive Egyptian governments since the outbreak of the country’s 25 January Revolution have attempted to employ a number of new strategies in order to obtain foreign financial aid. However, in the last two years they have been able to secure a total of only $11bn in loans, grants and bank deposits.
The Ministry of Planning and International Cooperation engaged in negotiations over the last week to secure $6bn in backed deposits from Egypt’s Central Bank, bringing the country’s total to $17bn.
Despite the magnitude of money obtained by Egypt over the last seven months, the country has yet to see it have a positive effect on Egypt’s economy, which faces a number of challenges related to the downgrading of the country’s credit rating.
Qatar, Turkey and Saudi Arabia are among the most prominent nations to have so far offered to provide Egypt with financial aid, so far totaling $8.5bn. Unfortunately this has not yet had an effect on Egypt’s foreign currency reserves, which have decreased $22.5bn since the outbreak of Egypt’s revolution, reaching a total of $13.5bn by last February. This number is smaller however, if one does not include grants, loans and backed deposits obtained by Egypt over the last two years.
Egypt is also soon set to receive $6bn in backed deposits, $4bn from Iraq, with an additional $2bn from Libya, in addition to $2.5bn offered previously by Saudi Arabia for the purpose of Egypt purchasing government bonds.
These numbers reflect the government’s repeated inability to stimulate growth in Egypt’s economy, or at the very least meet the everyday demands of Egyptian society. Without this aid Egypt would not have been able to sustain and pay for its foreign food imports according to Ehab Al-Dosouqi, economics professor and director of the Sadat Academic Research Centre.
He said that Egypt’s biggest economic problem did not lie in its inability to obtain foreign aid from abroad, but rather in the way in which that aid was used by the country’s governing institutions.
Dosouqi added that money borrowed from foreign and Arab donors won’t go far in helping to solve the country’s economic problems, so long as Egypt’s political parties were unable to reach an agreement. Political divisions currently witnessed in Egypt, he said, may prevent the country from securing its pending $4.8bn International Monetary Fund (IMF) loan.
He further stated that the country’s foreign currency reserves were at dangerously low levels, and would continue to decrease as long as the country’s political division continued. This, he said, was the biggest obstacle preventing Egypt from securing foreign investment and encouraging a return of tourism.
A bank source who chose to have his identity concealed stated that Egypt’s acceptance of foreign loans could put immense pressure on the country’s Central Bank in the future, especially considering that the period stipulated for repayment of many of these loans was set to begin within four to eight years. He doubted whether or not the Bank would be able to repay these loans on time, a fact which could further weaken Egypt’s position in its negotiations with the IMF.
He criticised the government for its inability to encourage the pace of economic growth, despite the fact that it had the tools and instruments at its disposal to do so. The country’s repeated downgraded credit rating he said was a testament to the extent to which the government had failed to set any coherent economic policy.
He also warned that Egypt’s warming relationship with Iran and its acceptance of a $4bn backed deposit from Iraq could serve to jeopardise the country’s chances of securing other sources of funding for political reasons due to cleavages in regional power politics.
A Central Bank official further commented saying that negotiations with Iraq and Libya over foreign aid were still in their early stages, and that if accepted would be used to stabilise Egypt’s foreign currency reserves. He further stated that Bank officials did not seek to involve themselves in Egypt’s current political climate, saying that their only concern was to revive Egypt’s economy and provide incentives for an increase investment.