The UAE will provide a US$1 billion deposit to Egypt’s central bank as the country looks to boost funds to meet the IMF’s loan requirements.
The deal was signed by Mohammed Saif Al Suwaidi, director general of the Abu Dhabi Fund for Development, and Egypt’s central bank governor, Tarek Amer, giving Egypt six years to repay the loan, according to WAM.
Earlier this month the IMF said it had reached an initial agreement with Egypt for a three-year $12bn extended fund facility which would help the foreign exchange and decrease the budget deficit. However, the lender’s executive board said that it would not consider the loan until Egypt secured about $6bn from other creditors.
Investment in Egypt has halted as the country grapples with a shortage of hard currency. Egypt’s Naeem Brokerage said that the country will need billions of dollars a year just to get its head back above water.
Allen Sandeep, director of research at Naeem Brokerage, said that about $10bn in cash injections annually will be needed to come from a variety of sources including the IMF, World Bank, African Development Bank, international bond issuances plus with a “little help from the GCC”.
The UAE, Saudi Arabia and Kuwait have spent billions of dollars supporting the Abdel Fattah El Sisi regime. And earlier this year, both the UAE and Saudi Arabia committed over $7bn in aid to Egypt.
But questions remain as to when the GCC deposits would actually arrive.
Mr Sandeep said that it should be sooner rather than later. “But whether this continued support from the GCC will follow through into next year or 2018/2019 will depend on their internal circumstances that hinge on the price of oil,” he said.
Saudi Arabia is losing about $10bn per month in revenues because of the drop in oil, which is hovering around US$50 a barrel from highs two years ago of at $110 a barrel. And while the UAE is feeling some pain from the drop in oil, it is still better positioned because it has a smaller population. “As things stand, at current [oil] prices, it will be difficult to predict any large deposits from the GCC,” Mr Sandeep said.
And tapping development financial institutions will not be an easy road for Egypt as there will be strict requirements to obtain these soft loans.
Chris Jarvis, head of the IMF’s mission to Egypt, said that Egypt’s fiscal policy will be anchored to placing public debt on a “clearly declining path toward more sustainable levels” dropping from 98 per cent this year to about 88 per cent of GDP in 2018/2019 fiscal year.
“The government recognises the need for quick implementation of economic reforms for Egypt to restore macroeconomic stability and to support strong, sustainable and job-rich growth,” said Mr Jarvis.
Follow The National's Business section on Twitter