Egypt’s central bank has received $2 billion in Saudi funds, the latest installment of a $12 billion Arab aid package to help the new government shore up a crumbling economy after the removal of Islamist Mohamed Mursi as president on July 3.
Egypt’s finances, in havoc from political strife since the2011 popular uprising, worsened in the first five months of 2013, with the budget deficit widening to almost half of all state spending.
Foreign reserves fell to $14.9 billion in June, representing less than the three months of imports that the International Monetary Fund considers to be a minimum safe cushion. Only about half of the reserves are in the form of cash or in securities that can be spent easily.
The mounting distress pushed Mursi to approve a 24.2 percent increase in borrowing to finance the budget deficit days before he was deposed, a law published in the official gazette on Sunday showed.
After a meeting on Sunday, the new cabinet said its policy would be to reduce the burden on lower income groups as it brought the deficit under control.
“The people need to be informed candidly about the size of Egypt’s problems, which require quick and decisive action,” it said in a statement after the meeting.
The government would seek to increase revenue by boosting productivity, foreign investment and exports, while guaranteeing the availability of basic life necessities at stable prices.
It would also work to get the distribution system for petroleum products under control and prevent the leakage of subsidized fuel onto the black market, it said.
Central bank governor Hisham Ramez told Reuters the $2 billion of Saudi funds arrived in the form of a five-year interest-free deposit at the bank.
The bank had already received $3 billion from the United Arab Emirates on Thursday, $2 billion of which was a cash deposit and $1 billion an outright grant.
Saudi Arabia has pledged a further $2 billion in energy products and $1 billion in cash, while Kuwait has promised $4 billion. Ramez said no date had been set for the Kuwaiti payment and did not indicate when the Saudi $1 billion was expected.
The law signed by Mursi increased total government spending on energy subsidies by 20 billion Egyptian pounds ($2.86billion) and boosted interest payments on state debt by 12.65billion pounds.
Foreign buyers largely fled Egyptian securities after the uprising that toppled Hosni Mubarak in early 2011, forcing the government to rely on local banks for finance. Interest rates were pushed into double digits.