Gulf aid helps Egypt avoid financial collapse
By Una Galani :
Egypt's new rulers have a fighting chance of implementing their ambitious and controversial plan to build a fully-functioning democracy within one year, thanks to significant financial support from the Gulf. Following the army's removal of the Muslim Brotherhood from power and the appointment of respected economist Hazem el-Beblawi as interim prime minister, Saudi Arabia and the United Arab Emirates have pledged $8 billion in aid to Cairo in the form of cash, central-bank deposits, and petroleum products.
The coordinated effort reveals Saudi and the UAE's deep distrust for the Brotherhood, a movement they have long viewed as a threat to their own stability. The funding terms are unclear, but it dwarfs the $4.8 billion International Monetary Fund loan that has been talked about for ages. When and if the money from the Gulf arrives, Egypt's foreign reserves will be sufficient to cover more than four months of imports.
Egypt has been kept afloat for the past 2.5 years by a drip of funds from a handful of bilateral donors. That did nothing to help the underlying economy, but it averted or at least delayed a financial collapse. Yet Cairo's funding sources were beginning to look fragile even before the military ousted the Islamist government.
The Brotherhood's incompetence was testing the patience of Qatar, which has extended more than $8 billion to Egypt since 2011. And Turkey, a supporter of the previous government, can't keep up its aid to Cairo because unrest in Istanbul and other cities is affecting the lira.
Investors can assume that Saudi and the UAE will provide more funds to Egypt if needed. The cash injection will also be a relief to the U.S., where President Barack Obama's administration is under pressure to cut off its existing support because the army's move could be deemed a coup.
The hope is that Egypt's new rulers will make better use of the billions they've been given than their predecessors. The country's crippling budget and current-account deficits can only be addressed through a gutsy reform of fuel subsidies. Yet with Egypt's main political players already squabbling about a new constitutional decree, making good use of the funds will require more unity than is currently on display.
Reuters Breakingviews
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