$38bn fund pledged to push reform

The Group of Eight finance chiefs pledge $38bn in financing to Egypt, Tunisia, Morocco and Jordan, and add that they will support Libya in the future

The finance chiefs of the Group of Eight (G8) yesterday pledged US$38 billion (Dh139.57bn) of loans to four Arab countries to promote reform.

Having agreed at a May meeting in Deauville, France, to offer $20bn in loans to Egypt and Tunisia, the G8 ministers extended that helping hand to Morocco and Jordan with extra money available.

"With strained public finances, the immediate challenge for these countries is to fulfil people's expectations while preserving macroeconomic stability," said a communique released yesterday by the G8 under the banner of the Deauville Partnership.

The UAE was represented as a partner at the talks, which were held alongside the G7 meeting in Marseille. Other interests included Libya's ruling interim council, Saudi Arabia, Kuwait, Qatar and Turkey.

Nine international and regional financial institutions are also participating in the partnership.

The communique said the partnership would also support Libya in the future.

Of the total financing, the World Bank is to provide $10.7bn (Dh39.3bn), the African Development Bank $7.6bn, the Islamic Development Bank $5bn, and the remainder is to come from the European Bank for Reconstruction and Development and other lenders, Reuters reported.

Ghanem Nuseibeh, the founder of Cornerstone Global Associates and the senior analyst with Political Capital, said the aid package was a "vital" element in a wide-ranging economic and political solution to the unrest in the region this year.

"It's too early to work out who's getting what," he said. "But I cannot think of any G8 member that can afford this. It shows the importance of stability in those countries."

The financing will take the form of loans rather than grants and is expected to support reforms already being put in place.

Egypt was again marred by unrest and violence over the weekend, when crowds attacked the Israeli embassy in Cairo, with 1,000 people reported to have been injured and three killed.

Mr Nuseibeh believes that although support is crucial in Egypt, Jordan has also been added to the list of countries because it is trying to manage a burgeoning deficit and offer subsidies whose removal would be politically disastrous.

"Jordan needs anything that comes its way," he said. "Egypt, Morocco and Tunisia to a lesser extent. The question we still don't know is what the money will be earmarked for."

The G8 financing will be in addition to any money that is likely to be offered by the IMF.

"The real test will be in the actual delivery of funding at a time when pressures in those G8 countries are also very acute," said Simon Williams, the chief economist for the Mena region at HSBC. "It's a clear statement of intent, and funding will be welcomed in those countries. Their deficits are going to widen, and growth has slowed and commitments increased."

Separately, the International Monetary Fund recognised Libya's National Transitional Council as holding the country's seat, according to Christine Lagarde, the head of the Washington-based fund.