News Analysis: Gulf aid no magic wand to solve Egypt's economic crisis
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E-mail Xinhua, July 10, 2013
Saudi Arabia and the United Arab Emirates approved eight billion U.S. dollars in aid to Egypt, an reassuring message to Egyptians worrying about their economy, but analysts say the aid will not be a magic wand to solve Egypt's economic crisis once and for all.
In a step to show their support for the Egyptian army's move to push the Muslim Brotherhood out of power, Saudi King Abdullah bin Abdulaziz Al Saud on Tuesday ordered financial assistance worth five billion dollars to Egypt.
The aid includes two billion dollars in the form of oil and gas products, two billion dollars as a deposit in the Central Bank of Egypt, and one billion as a grant.
The United Arab Emirates (UAE) yesterday also offered a three billion U.S. dollars aid package to Egypt, including a financial grant of one billion dollars and an interest-free loan of two billion dollars in form of a deposit in the Central Bank of Egypt.
The much needed aid will help the Egyptian economy, which is in dire straits, to pay for necessary imports, as well as boost confidence in the transitional government, but cannot tackle the economic crisis at the root.
"Donations and loans are just pain-killers that never treat the real illness," said Foad Shaker, former Secretary General of the Union of the Arab Banks.
Egypt shouldn't depend on receiving more loans and donations; " having a government with a new vision is required to fix the Egyptian economy," Shaker told Xinhua.
Such dependency on loans and donations was the main problem of the economic system during Mubarak's regime, he pointed out.
"Morsi's administration was not wise either. They got nearly 11 billion dollars of loans that didn't help rescue Egypt's struggling economy."
"People in Egypt should know that getting aid and loans are not the solution; after all, we have to pay them back," Shaker said, adding that taking more loans to treat budget deficit and pay for imports will add burdens to the deficit in "debts."
Prominent economist Hazem al-Beblawi was appointed Tuesday by Egypt's caretaker President Adli Mansour as prime minister in the transitional government after days of political stalemate over the post.
Beblawi said he would start consultations to form the new government, but could not set a deadline to finish his mission, though he wishes to swiftly do so, as the country is going through critical time.
"We need a highly efficient government that can deal with the aid in a way that helps to strengthen the economy," Shaker said adding that "he is optimistic over the appointment of Hazem al- Beblawi, a prominent economist, as a prime minister."
Egypt's general budget deficit exceeded 29 billion dollars, or 11.8 percent of the GDP, over the past 11 months, the Finance Ministry reported on June 20.
Egypt's foreign reserves fell from 16.04 billion dollars in May to 14.9 billion dollars at the end of June, the Central Bank of Egypt said in a report.
Egypt's foreign reserves stood at about 36 billion dollars in January 2011, right before the outbreak of the massive protests that ousted former President Hosni Mubarak, and have been on a drastic decline since then.
"Such loans are just postponing the problem," said Mohamed Abdel Aziz Hegazy, professor of finance at the American University in Cairo.
"Egyptian government should think about other strategy that aims to cut expenses and generating new income sources," he added.
They should also begin soon to draw up a strategy that can help luring more investments from friendly countries rather than loans and donations.
"Those investments will be the solution for many economic problems, and for this purpose we need to reach a quick settlement to the political conflict and form an efficient government," Hegazy said.
The Brotherhood government was not able to rescue the deteriorating economy despite loans from Turkey, Qatar and Libya, and its promises of its renaissance project.
Among priorities of Beblawi's government is likely to be the conclusion of a long-negotiated 4.8 billion U.S. dollars International Monetary Fund (IMF) loan.
Former Prime Minister Hesham Qandil's government was in talks with the IMF on the loan, but the negotiations have been hindered due to the political division dragging the country into a state of chaos.
In spite of receiving large sums from Gulf countries, Hegazy still see the IMF loan as a necessity. "It will give assurances and confidence for investors and other international monetary institutions in the Egyptian economy," he said.
From his side, Ihab el-Dousoky, chief of the economic studies center at Sadat Academy, said the Egyptian economy is facing tough challenges, but it has strong pillars upon which it could recover soon.
He asserted the importance of the aid showered Egypt recently, "it will enhance the foreign currency reserve and help the economy to get out of its stagnation."
He pointed out that political stability will nourish the tourism sector and help build investors' confidence; which is a base for improving the economic performance. Endi
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