Cairo, Asharq Al-Awsat—Experts say that billions of dollars pledged by Gulf states to Egypt in recent days will help the recovery process of the country, which has recently teetered on the brink of bankruptcy.
Saudi Arabia, the UAE and Kuwait, donated USD 12 billion in aid to Egypt in the wake of the toppling of President Mursi on July 3.
Among the complaints of the millions of Egyptians who demanded the departure of President Mohamed Mursi was the dire state of Egypt’s economy, which has suffered from increasing rates of inflation and unemployment, in addition to a significant shortage in fuel.
However, the climate caused by the security situation and political instability has reduced the chances of a return of tourists, who provide Egypt with its main source of income, and the foreign investments, which collapsed after the fall of Mubarak’s rule in 2011.
The stalled negotiations with the International Monetary Fund (IMF) to obtain a loan of USD 4.8 billion are expected to continue, because the country is still without a government and without reform plan.
Financial analyst Andrew Cunningham has said: “Even if an agreement was reached on the loan [with the IMF], I do not think that this will translate into a flow of investments. The country is in crisis since 2011 and has just witnessed a military coup, with people being fired at in the streets. It is difficult to talk about a framework that attracts investment in such circumstances.”
The financial aid from the Gulf—USD 5 billion from Saudi Arabia and 4 billion from Kuwait and 3 billion from the UAE—provide a temporary breathing space for the country. At the end of last June, the Egyptian Central Bank only had USD 14.9 billion in actual foreign currency reserves, compared to USD 36 billion at the start of 2011, enough to cover three months of imports.
Gulf funds may allow the country to continue to import essential products in the coming months, especially wheat, of which Egypt is the number one global importer, or certain types of fuel, such as diesel. Analyst Sebastian Bonsulah, said “in this country of 90 million people, one in four live below the poverty line and can only survive because of the wheat which is subsidized by the state, and the larger proportion of which, is imported.”
However, the funding from the Gulf cannot be a long term solution, according to Cunningham, because Egypt received billions from Qatar last year, which only allowed a delay in loan repayment dates.
He said that “this is not more than a temporary solution. The challenges are great and are in the infrastructure. Egypt’s economy has suffered from mismanagement for decades, and this was not addressed during Mursi’s rule.”
Statistics indicate a sharp increase in unemployment, which reached 13.2 per cent of the actual work force, compared to 8.9 per cent three years ago. However, many economists and ordinary Egyptians suspect that these official figures are much lower than the real ones.
This comes on top of an educational system and a medical sector in a state of collapse, and rampant corruption, as well as an overstaffed administration which is poorly paid, and a system of subsidy of essential products which increases the budget deficit, currently 11.5% of GDP.
The appointment of Hazem El-Beblawi-a former finance minister who has long experience in financial institutions-as the head of the transitional government, seems to indicate the will to make economic development at the top of priorities.
The American private intelligence company Stratfor recently issued an analysis paper which said Egypt’s difficulties go beyond the current political problems, and will add to the problems of the next government.
It warned “demographic pressure and growing economic pressures,” will continue to present greater challenges year after year.