U.A.E. Urges Egypt to Trim Budget as Gulf Aid Pours In

The United Arab Emirates, which is backing Egypt with billions of dollars in aid, said its ally needs to shore up public finances and invest in infrastructure to revive an economy battered by unrest.

Sultan Al Jaber, the U.A.E. minister overseeing assistance to Egypt, also urged institutions such as the International Monetary Fund and the World Bank to show flexibility in dealing with the new leadership in Cairo.

Saudi Arabia, supported by the U.A.E., has called for a donor conference to help Egypt pull out of the worst slowdown in two decades. The prospect of more Gulf aid helped make Egypt’s benchmark stock index the world’s best performer yesterday, adding 4.7 percent.

Al Jaber’s remarks come as Egyptian President-elect Abdel-Fattah El-Sisi prepares to take office next week, inheriting an economy suffering from record unemployment and one of the highest budget deficits in the region. El-Sisi, the former military chief who led the ouster of Islamist President Mohamed Mursi in July, has pledged to restore order and revive growth.

“Key to this economic recovery is an effective fiscal consolidation program that will restore the confidence of domestic and foreign investors by putting public finances back on a sustainable path,” Al Jaber said in an e-mailed response to questions June 4. Egypt also needs a “comprehensive investment program to support growth through infrastructure projects and major investment,” he said.

Budget Deficit

Egypt’s budget deficit is expected to narrow to between 11 percent and 11.5 percent of gross domestic product in the fiscal year ending this month, Finance Minister Hany Kadry said in May. The shortfall was about 14 percent the previous year.

“Unless Egypt pushes reforms, its vulnerability will only rise from already high levels, while financing needs will remain enormous,” Raza Agha, chief Middle East and Africa economist at VTB Capital Plc, said in an e-mailed response to questions. “Both factors will keep private investors away, increasing pressure on Gulf countries to continue their generosity.”

El-Sisi, who won last week’s presidential election, has stressed the need to restructure costly energy subsidies without hurting the poor. The government has also proposed a capital gains tax.

El-Sisi’s challenge is compounded by political tension and a wave of militant attacks that have surged since Mursi’s removal. Authorities classified Mursi’s Muslim Brotherhood as a terrorist organization and started a bloody crackdown against its members. The group says it’s committed to opposing the army takeover by peaceful means.

IMF Talks

The U.A.E., Saudi Arabia and Kuwait have pledged about $15 billion in aid to Egypt since Mursi’s ouster. The U.A.E. has set up an office in Cairo to oversee projects financed by aid money, including clinics, schools, affordable housing and wheat silos. Al Jaber flies to Egypt regularly for talks with Egyptian officials and to inspect projects.

The U.A.E.’s foreign minister said last week that its search for partners to support Egypt includes the IMF and the World Bank. Egypt has repeatedly engaged in loan talks with the IMF after the uprising that toppled President Hosni Mubarak in 2011, without ever concluding a deal.

IMF Managing Director Christine Lagarde spoke to El-Sisi by phone yesterday to congratulate him on his election, and “reiterated the Fund’s continued commitment to help Egypt and its people,” the IMF said in an e-mailed statement today.

Al Jaber said organizations such as the IMF, the World Bank and the European Bank for Reconstruction and Development “need to adopt an open, dynamic, creative and flexible approach” to Egypt.