External aid from donors and international organisations continues

Given Egypt’s structural fiscal deficit, and the time required to carry out the necessary reforms to resolve it (see analysis), the nation has been compelled to seek external assistance in order to meet its budgetary commitments. A long-term financing arrangement offered by the IMF in the wake of the 2011 revolution has been the subject of heated political debate over recent years, and remains on the drawing board.

Regional Partners

However, the nation has been granted a considerable degree of fiscal breathing room thanks to its success in attracting aid and investment from regional partners. During the presidency of Mohammed Morsi, Egypt secured aid from Qatar ($8bn), Libya ($2bn), Turkey ($2bn) and Saudi Arabia ($1bn) in the form of deposits to the central bank, loans, oil exports and investments. Following the end of Morsi’s administration, this inward flow of capital has continued, although the donor mix has changed somewhat. In July 2013 the UAE revealed details of a $3bn aid package, made up of a $2bn interest-free deposit at the Central Bank of Egypt (CBE) and a $1bn cash grant, and by October 2014 Egypt and the UAE had signed off on an agreement valued at $4.9bn.

Kuwait, meanwhile, provided Egypt with a non-refundable grant worth $1bn; a five-year, $2bn deposit to the CBE; and $1bn worth of petroleum products that helped to mitigate the nation’s fuel shortage. The largest Gulf donor over the past year, however, has been Saudi Arabia, which has pledged $5bn in the form of deposits, cash grants and petroleum products. In June 2014 Saudi Arabia’s King Abdullah bin Abdulaziz Al Saud called for a broader international effort to raise funds for Egypt, a demand that was quickly echoed by the UAE.

Some international assistance has already been forthcoming. The World Bank approved a $585.4m loan in 2013 for the new Helwan South power facility, while both the EU and individual European nations have offered soft loans and grants for infrastructural development. China has also offered assistance in the form of a $24.4m grant to finance social and economic development projects, while the Arab Fund for Economic and Social Development signed a $412m agreement with Egypt to finance the Assiut power station and an Egyptian-Saudi electricity linkage project.

Administering Aid 

Traditionally, the Ministry of International Cooperation has played the leading role in overseeing the grants received from foreign states and international organisations. However, the government has allocated a larger role to the military in terms of oversight and administration of inbound aid. In March 2014 an army spokesman told press that the military is taking charge of the billions of dollars of development aid sent to Egypt by the UAE, for example.

The military operates a number of subsidiary companies, some of which are involved in significant capital projects. According to press reports, in some instances donor countries have spoken directly to the army about investing in Egyptian projects. An announcement in June 2014 that the military-owned Arab Organisation for Industrialisation has been contracted by the government to build wheat silos in the Nile Delta is one such example. The construction of the silos forms part of the aid package funded by the UAE, and the 25 silos with a storage capacity of 1.5m tonnes directly address the problem of Egypt’s reliance on wheat imports. According to state news agency MENA, in a bid to accelerate the execution of the project, interim President Adly Mansour issued a decree allowing the firm to hire subcontractors without implementing a tender process – an obligation which other state companies had hitherto been compelled to adhere to.

Egypt has a clear need for a range of support mechanisms and donor aid has proven vital in ensuring that the country is able to stave off more dire circumstances. As growth begins to tick up to pre-crisis levels, the country should be able to generate more revenue to help close the budget deficit, although structural reforms will be needed. Securing capital inflows from donor countries could continue through the medium term if Egypt wants to ensure a quicker recovery.