Gulf’s $12bn aid to Egypt seen as ‘lifeline’, not a cure

Egypt has been promised $12bn in aid by Saudi Arabia, the UAE and Kuwait. (Al Arabiya)

Aid packages from Gulf states worth $12 billion offer Egypt a ‘lifeline’, but are not alone enough to remedy the country’s dire economic woes, economist say.

Saudi Arabia, the UAE and Kuwait this week announced multibillion packages of grants, cash deposits and energy products for Egypt, amid ongoing turmoil in the country following last week’s dramatic overthrow of its president.

Ashraf Swelam, an economist and senior advisor to former presidential candidate Amr Moussa, told AP that the financial assistance may help Egypt stay afloat for only about six months.

Infographic: Gulf pledges $12bn in Egypt aid (Al Arabiya)

“The aid is not enough to cover the financial gap,” he said. “The importance of it is that it provides Egypt's economy with a lifeline.”

The aid packages will help Egypt avoid “slipping off the economic precipice”, said Trevor McFarlane, research director for the Middle East and Africa at Gulfstat, an independent economic research company.

“In the short-term the money should boost investor sentiment in Egypt, but in reality it only allows the government to cover critical spending such as food and fuel imports, debt repayments and government salaries,” McFarlane told Al Arabiya.

The Arab world’s most populous nation has suffered economically under the former President Mursi’s 12-month rule, with levels of debt, unemployment and poverty all having risen.

Massive challenges remain following Mursi’s ouster, and despite the $12bn in aid from the three Gulf states, economists said.

“This aid is not enough to help address the country's economic woes. At its core, this is a political problem and fixing it is difficult,” McFarlane said.

“If the economy does not stabilize, it won't be too long before more aid is needed, and at that juncture will Gulf countries continue to pump cash into the Egyptian economy?”

Dr. Ahmed Abdul Hafiz, Professor of Economics at Ain Shams University in Cairo, explained that Egypt's foreign reserves, which dropped to $14.9bn in June, are so low they are at a “dangerous” level.

"These amounts would not last Egypt over two and a half months, since Egypt's consumption exceeds that by far," Abdul Hafiz told Al Arabiya.

Hafiz welcomed the $12bn aid from the Gulf countries. “This amount will give a huge boost to Egypt’s economy, giving the Egyptian pound some stability, and supporting the economy over all in the coming transitional period,” he said.

Saudi Arabia's $5bn aid package includes $2bn to be deposited to Egypt's central bank, $2bn in the form of energy products, to give the country some room to breathe amid the alarming fuel crisis it faces, while the remaining $1bn is to be in the form of cash, reported Reuters.

The UAE announced a $1bn grant and a no-interest loan of $2bn to Egypt, reported the Emirtes News Agency (WAM). Kuwait is to offer a deposit of $2bn to Egypt's central bank, a $1bn grant, and energy products worth $1bn, reported KUNA.

Last Update: Thursday, 11 July 2013 KSA 16:04 - GMT 13:04

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Gulf’s $12bn aid to Egypt seen as ‘lifeline’, not a cure
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