Qatar pledged another $3 billion in aid to Egypt, extending the lifeline for Islamist President Mohamed Mursi after repeated delays in loan talks with the International Monetary Fund.
The money will be deposited at Egypt’s central bank, Qatari Prime Minister Sheikh Hamad Bin Jassim Al Thani said at a press conference today in the Gulf state with his Egyptian counterpart Hisham Qandil. Egypt’s Eurobonds extended their rally after the announcement, with the yield on debt due in 2020 dropping 32 basis points to 7.12 percent as of 4:37 p.m. in Cairo.
Qatar has already provided Egypt with $5 billion in deposits and grants, helping to shore up the finances of the Arab world’s most populous nation as investment and tourism declined amid the turmoil that followed the 2011 uprising against Hosni Mubarak. The Egyptian premier and several other top ministers arrived yesterday, as an IMF technical team continues talks in Cairo over Egypt’s $4.8 billion loan request.
Two years of political unrest have left Egypt’s economy growing at the slowest rate in two decades. The nation’s foreign currency reserves were down to $13.4 billion by last month, more than 60 percent below their December 2010 level, and its currency has dropped more than 10 percent in the past four months. Officials say they aim to boost reserves to $16 billion by the end of June, without saying how.
The Qatari funds will be a short-term boost given the current economic situation in Egypt, “but does it do anything to help Egypt come out of where it is? I don’t think so,” Said Hirsh, an independent economist based in London, said by phone. “There’s just a total lack of clarity about what this government is trying to do.”
The latest aid comes at a crucial time for Egypt, with no sign of proposed deposits from Iraq and Libya. The IMF deal is seen as critical for unlocking billions more in foreign funding. Raza Agha, chief Middle East and Africa economist at VTB Capital Plc in London, estimated Egypt needs $40 billion in external financing over the next two years.
“Only an IMF program will unlock the financing needs needed to cover these requirements, build reserves” and enhance investor confidence in Egypt’s prospects, he said.
Talks with the IMF have moved in fits over the past two years without reaching an agreement. Negotiations have been interrupted frequently as the chronic unrest and political gridlock in the country ran counter to the political consensus sought by the IMF for an economic program. Egyptian officials say they hope to conclude a preliminary deal during the fund team’s current visit.
An obstacle to the talks is the government’s concern that budget cuts needed to trim the deficit may stoke more unrest in an impoverished nation. Growing polarization was most recently illustrated in fatal clashes between Muslims and Christians.
Planning Minister Ashraf El-Arabi said today that Egypt’s program will be based on cutting the deficit and reforming the tax system, the state-run Middle East News Agency reported. Officials say the country could miss its budget deficit target of 10.9 percent of gross domestic product without spending cuts.
There is also widespread anger at rising prices, fuel shortages and rolling blackouts ahead of the key summer months that threaten the government’s ability to cut energy subsidies, a policy favored by the IMF. Inflation has jumped this year, though it unexpectedly eased to 7.6 percent from 8.2 percent last month, according to a report today.
Qatar, the world’s biggest exporter of liquefied natural gas, also will cover Egypt’s gas export obligations over the summer, Al Thani said. The move could ease the burden on Egypt, where officials have traded accusations over why blackouts are taking place ahead of the summer.
While the Qatari aid has so far at least helped slow the depletion in international reserves, which are now below three months of import cover, they’ve also carried a political cost for both governments. Some of Mursi’s critics have said Qatar is buying influence in the country and may be seeking influence over the Suez Canal, which Egypt’s government denies.
“We don’t ask for anything from the Egyptian government in exchange for the Qatari aid,” Al Thani said today.