Egypt’s political mess holds back aid, economic growth
Egypt needs cash, quickly. But without a recognisable government and a ruling military council criticised for its protest crackdown methods, it’ll be very hard to secure investment and assistance.
November 28, 2011 4:26
Egypt needs cash, quickly. But the country stands without a recognisable government, in the hands of a ruling military council criticised by the international community for a bloody crackdown against pro-democracy protesters. In these conditions, it may find it very hard to secure international assistance.
Since the start of the year Egypt’s domestic borrowing costs have soared and its foreign reserves have plunged 40 percent. As the government has thrown money at supporting the currency, the country is left with liquid funds equivalent to just three months worth of imports.
With hindsight, it seems obvious that the army should have accepted the $3.2 billion 12-month facility offered by the International Monetary Fund in June. Back then, Egypt was seen as a debutante of the Arab uprisings, the population was optimistic about the transition to democracy and the interim government was expected to remain in power for at least four months.
MORE WORRYING THAN THE JANUARY UPRISING
But the uncertainty in Egypt today is, in some ways, more worrying than during the January uprising. It isn’t clear that the army is willing to give up power and has already resorted to using excessive force to protect its position. What’s more, two finance ministers and an entire cabinet have resigned in less than one year. That is hardly a stable environment in which the IMF might lend. How could the lender be sure the money was used properly?
It is unclear whether the generals want a deal with the IMF or whether the IMF could contemplate a deal with the generals. Moreover, the doubts may not lift even if a national unity government wins power in the coming days. It may only be in place for a matter of weeks before parliamentary elections are completed. And there is no guarantee an IMF deal would secure support of the Egypt’s eventual rulers.
Clarity and stability of a sort that would satisfy the IMF may also unlock billions more cash provisionally pledged by the World Bank and the Group of Eight nations. Gulf countries have also provided some funds. But with the army in charge, it is hard to see how Egypt can claim the financial assistance it so desperately needs.
– On Nov. 20, Egypt said that it would ask the International Monetary Fund to start negotiations around a new $3.2 billion financing package. The country turned down such a facility in the summer.
– Hazem el-Beblawi, the finance minister who confirmed that discussions would be over the same amount of $3.2 billion offered previously, has since resigned from his position along with the entire Egyptian cabinet.
– Egypt received a total of at least $1.5 billion of aid from Saudi Arabia and Qatar during September and October in the form of T-bill purchases and grants, according to HSBC.
– Protests in Egypt entered their sixth day on Nov. 24. More than 30 people have died in confrontations between security forces and demonstrators who reject the army’s offer of a referendum on its rule.
– UN human rights chief Navi Pillay has called for an independent investigation into the “excessive use of force, including the apparent improper use of teargas, rubber bullets and live ammunition”.
– In September, the Group of Eight finance chiefs pledged $38 billion in financing to Tunisia, Egypt,Morocco and Jordan over 2011-13 in the wake of the Arab uprisings.
– Truce quiets Cairo streets, army apologises
(The author, Una Galani, is a Reuters Breakingviews columnist. The opinions expressed are her own; Editing by Pierre Briançon and David Evans)