Saudi Arabia has deposited $1 billion in Egypt’s central bank, which may give the government more time to secure an International Monetary Fund Loan.
Egyptian and Saudi officials are “coordinating” to implement the rest of a Saudi aid package to the North African country, an e-mailed statement from the prime minister’s office said. That includes $500 million to finance high-priority development projects, $250 million for buying petroleum products and a $200 million grant for small and medium-sized projects and industries, it said without providing further details.
“The Saudi lifeline confirms that the drawdown in the official reserves has come to an end for now,” Jean-Michel Saliba, a London-based economist at Bank of America Merrill Lynch, said in response to e-mailed questions. It gives the central bank “more room to manage the Egyptian pound until finalization of an IMF loan.”
The Saudi aid may also give a boost to Egypt’s efforts to obtain the $3.2 billion loan it requested from the IMF in January. The fund says Egypt should show how it would meet additional financing needs, as well as providing evidence that the economic program tied to the loan has sufficiently broad political support to ensure it will be implemented.
Egypt’s foreign reserves have plunged about 60 percent since the end of 2010. The decline halted in April when reserves rose for the first time since the uprising that began in January last year and ousted Hosni Mubarak. The central bank said a revival in tourism and a slowdown in capital flows out of the country helped stem the drop.
Last month, Egyptian Finance Minister Momtaz el-Saieed said Egypt’s foreign reserves will show an “improvement” as the government receives aid from Saudi Arabia.
The Saudi deposit is “positive news for Egypt, particularly as the fractured politics” have undermined support for the IMF program, Raza Agha, London-based senior economist at the Royal Bank of Scotland Group Plc, said in response to e-mailed questions. “This, coupled with the dollar t-bill auction that was announced, will obviously help build reserves. Key is whether Saudi support helps unlock additional bilateral support from Arab donors.”
The central bank said today that Egypt will seek to raise $750 million in dollar-denominated treasury bills on May 15.
Egypt’s economic growth slowed to 0.4 percent in the final quarter of 2011, from 5.6 percent a year earlier.