Egypt’s Gulf allies have pledged as much as $22 billion to help the country cope with the effects of the war in Ukraine.
The aid from Qatar, Saudi Arabia and the UAE will come in the form of central bank deposits and investments, according to government and media reports, which didn't specify the period over which the amount will be disbursed.
This will be the third time in less than a decade that Gulf states have stepped up financial support for the most populous Arab state.
“It’s very much needed and it’s a very natural course — we’ve seen it over the last decade or so that the Arab Gulf states support Egypt,” said Ashraf Naguib, chief executive of Cairo-based think tank Global Trade Matters. “Overall, a stable Egypt equates to a stable region."
As one of the Middle East’s most indebted nations with about half of its population living near or below the World Bank’s poverty line, Egypt was already in a precarious position, made worse by the ongoing conflict in Europe that has strained its food supplies.
Russia’s invasion of Ukraine has had a drastic effect on Egypt’s food security with the warring countries accounting for 80 per cent of its wheat imports.
Also, Egypt is suffering from rising import costs and energy prices, decreasing foreign currency reserves and tourist inflows.
The nation's annual urban inflation rate rose to 8.8 per cent in February, the fastest in almost three years, due to surging food prices.
Saudi Arabia pledged $15bn. The kingdom deposited $5bn in Egypt’s central bank, the state-run Saudi Press Agency reported on March 30.
Saudi Arabia’s Public Investment Fund is weighing $10bn of investments in Egypt’s healthcare, education, agriculture and financial sectors, according to an Egyptian cabinet statement.
Qatar agreed to sign investment deals worth $5bn, the Egyptian cabinet said in a statement on March 29.
Abu Dhabi wealth fund ADQ last month made a deal of approximately $2bn to buy Egyptian state-held stakes in publicly-listed companies.
ADQ’s investments could include acquiring stakes in both listed and unlisted Egyptian companies, Ayman Soliman, the chief executive officer of The Sovereign Fund of Egypt, told Al Arabiya TV on Monday. Details may be announced within days, he said, declining to name specific companies.
Saudi Arabia’s Public Investment Fund may buy stakes in military-owned Wataniya Petroleum and three Siemens-built power plants as part of its pledged $10bn investment in Egypt, Mr Soliman said.
To mitigate the economic shocks caused by supply chain disruptions and shore up foreign currency reserves, Egypt recently introduced a 130bn Egyptian pound ($7.1bn) relief package, raised interest rates, let its currency weaken sharply and asked for support from the International Monetary Fund.
The central bank raised interest rates for the first time since 2017 and allowed the pound — which had been stable against the dollar for about two years — to weaken by more than 15 per cent. The currency closed at 18.19 pounds to the dollar on Monday.
Unlocking IMF support
Egypt has started discussions with the IMF on new support that may include a loan. The country has turned to the Washington-based lender three times in the past six years, borrowing $12bn in 2016-2019 under an economic reform package and a further $8bn in 2020 during the pandemic.
“We welcome Egypt’s response to head off the balance of payments shock and impact of rising prices,” Gerry Rice, director of communications at IMF, said on Friday.
“IMF staff are working closely with the Egyptian authorities to prepare for programme discussions with a view to supporting these shared goals of economic stability and sustainable job-rich growth and inclusive medium-term growth for Egypt.”
The backing of Gulf countries could help unlock IMF support by covering part of the expected funding gap, as it is typically a requirement that the recipient line up funds from other sources.
In addition to rocketing commodity prices, Egypt is facing $3bn to $4bn of lost revenue from fewer Russian and Ukrainian tourists, said Allen Sandeep, director of research at investment bank Naeem Holding in Cairo.
“All in all, Egypt is facing a funding gap of roughly $15bn in the next 12 months,” Mr Sandeep said.
“The $5bn deposit from KSA will add a lot of confidence in terms of exchange-rate stability, in terms of liquidity,” he added. “We’re still waiting to see what form the rest of the money will be in. This will take a longer time to filter down into the economy.”
Egypt’s food subsidy bill, which was budgeted at 88bn pounds ($4.8bn) before the Ukraine war, is likely to increase because of higher prices of commodities in general. The country’s subsidised programme includes providing cheap bread for 70 million people and increasing the price is a highly charged prospect.
The interrelation between food security and political stability is a key motivation for the financial support of Gulf Arab states.
“They’re hyper-aware that 11 years ago, food prices were part of the reason that the Arab Spring happened,” said Ryan Bohl, Mena analyst at the Rane Network’s geopolitical platform Stratfor.
Egypt’s January 2011 revolution led to the removal of then-president Hosni Mubarak from power and the election of Islamist President Mohammed Morsi in 2013.
The ousting of Morsi in mid-2013 was led by Abdel Fattah El Sisi, then-army chief and now president. In an apparent sign of approval, Kuwait, Saudi Arabia and the UAE sent $23bn in grants, cash deposits and fuel shipments in the 18 months following the rebellion against Morsi.
While at the time this was tied to the perceived threat of the Muslim Brotherhood to security and stability in Egypt, similar incentives remain.
“The Arab world and mainly the Gulf world got the lesson of 2011 and beyond,” said Mohamed Farahat, director of Al Ahram Centre for Political and Strategic Studies. “The main lesson is that a strong economy and a strong state in Egypt is very important for stability in general in the region.”
In 2016, when Egypt devalued the pound by half, Saudi Arabia deposited about $3bn and the UAE $1bn in the central bank prior to the IMF agreement, UAE state news agency WAM reported.
This time, the dynamic is slightly different in that the financial support is coming more in the form of investments.
“It’s the perfect balance between supporting the Egyptian people for stability and at the same time to make viable investments in a country that is growing and will give you a return,” said Mr Naguib of Global Trade Matters.
In Qatar’s case, it is also a signal of improved relations after the two countries ended a years-long feud in early 2021. Bahrain, Egypt, Saudi Arabia and the UAE froze relations and cut ties with Qatar in 2017 over accusations that it supported extremists.
“This is Qatar’s way of reintegrating into the Arab diplomatic fabric,” Mr Bohl said.
The $5bn investment package was announced after Egyptian Foreign Minister Sameh Shoukry met his Qatari counterpart last week. One of the points of discussion was reportedly reopening the Al Jazeera network bureau in Cairo after almost a decade of closure.
While investments and financial support are not explicitly tied to a quid pro quo, they often help.
“This is true for any government around the world that loans or provides aid to another country; there are usually some kind of strings attached, in one way or another,” said Amy Hawthorne, deputy director for research at the Project for Middle East Democracy.
The issue is how sustainable this model is for Egypt, which continues to rely heavily on foreign funding to keep its economy afloat.
“Once again, it’s on the precipice of crisis. Once again, it’s going back to the IMF and having to fill the gap with support from Gulf countries," said Ms Hawthorne.
"It’s the same cycle of problems that seems to be repeating itself.”