On the eve of the ouster of former president Mohamed Morsi in early July, the Egyptian economy was in its worst condition in decades with depleted foreign reserves, a weakening pound and non-existent foreign direct investment, accompanied by a ballooning budget and trade deficits. Many experts noted that foreign aid, and in particular a projected $4.8 billion loan from the International Monetary Fund (IMF), was the only way out. However, Morsi was then ousted by a military-backed popular uprising, and one week later aid commitments from the Arab Gulf countries, namely UAE, Saudi Arabia and Kuwait, began pouring into Egypt. The three countries pledged to send some $12 billion, of which Egypt has so far received $5 billion. Despite the political turmoil Egypt has been witnessing since the toppling of Morsi, these funds were long-awaited good news that gave the economy space to breathe. Foreign reserves jumped to $20 billion, compared to $14.9 billion in June, and enough to cover seven months of imports for the first time in a year. The increase eased heated demands for the dollar, stripping it of many of the gains it had made during the previous year. The dollar is now trading at LE7 against the pound, compared to LE7.65 on the black market a few hours before Morsi was deposed. The influx of Arab funds has come despite fears from non-Arab international donors. Sources close to both the United States Agency for International Development (USAID) and the European Union (EU) delegation in Egypt told Al-Ahram Weekly that no more activities were planned for aid-funded projects in Egypt and that most such projects would be suspended until there was a clearer outlook on the political and economic scenes. This contradicts the formal stance of both donors. While grappling whether to call the ouster of Morsi a coup or not, the US last week decided to keep its aid to Egypt at current levels but to link it to political and social reforms. As a result, the Senate State and Foreign Operations Appropriations subcommittee approved the $1.3 billion in military aid to Egypt and the $250 million in economic assistance that US President Barack Obama had requested for fiscal year 2014, which starts on 1 October, matching this year's level. US law bars countries where there has been a military coup from receiving US aid, but the US seems to be reluctant to lose its regional ally of Egypt. James Moran, the EU ambassador to Egypt, was quoted last week by the local media as saying that the 5 billion euros in aid agreed upon to Egypt last year had been cancelled, while the same media outlets one day later said he had been misquoted. The fate of the package remains unclear. On Thursday, the IMF said it would not engage in talks about a possible $4.8 billion loan to Egypt until the country's interim government had gained recognition from the international community. IMF deputy spokesman William Murray told reporters that the fund had not been in touch with the current government, only with bureaucrats on the technical level. The significance of the IMF loan does not lie its value, but instead resides in its being international recognition that Egypt is on the right track. There are commitments from international donors to provide Egypt with up to $14 billion in aid during the coming two fiscal years if it signs the IMF loan deal. It is only since the 25 January Revolution that foreign aid has become as important as it now due to the drainage of other foreign currency resources. According to Khaled Amin, associate professor of economics at the American University in Cairo, Egypt has never heavily relied on foreign aid as a main source of revenue, overall international aid in the years from 2006-07 to 2010-11 represented only two per cent of total government revenues. Moreover, according to the Organisation for Economic Cooperation and Development, the average Official Development Assistance, a term used to include forms of international aid in the shape of both loans and grants, given to Egypt in the three-year period ending 2011, came in at just $734 million. Egypt started receiving foreign aid in the 1970s, and in Egyptian minds the word aid is always linked to US aid. This started after Egypt signed the Camp David Peace Treaty with Israel in 1979. Since then, the country has annually received — and continues to receive — military aid of $1.3 billion, and economic aid of above $800 million. The latter has been reduced by five per cent annually since 1998 to hit about $250 million in 2011. There are also a lot of other donors, whether countries like France, Germany and Canada, or multilateral blocs and institutions like the EU and the Arab Fund. However, a closer look at the average of the three years ending in 2011 shows that the EU has been the largest foreign donor to Egypt. The major Arab donors are the Arab Fund and the Kuwaiti Sovereign Fund. According to Amin, Arab aid is viewed as more beneficial to Egypt than Western aid since it is less politicised and the Arab countries top the list of donors with the highest percentage of aid to national income worldwide. There is no evidence of Arab aid being used to promote the exports of donor countries, as there has been for aid received from Western donors. The bulk of the aid in the year that Morsi spent in power was mainly given by his regional allies of Qatar and Turkey, while the rest of the Arab world was reluctant to finance a regime dominated by the Muslim Brotherhood group that is banned in most Gulf countries. Foreign donors also failed to strike deals with the previous regime. Whether the aid money Egypt receives is well utilised is another question, since the aid money has given rise to mixed results. An audit of the four-year $57 million Commodity Import Programme run by the US, aimed at creating jobs in the agricultural sector and increasing income in rural areas, found that it had failed to increase jobs as planned. An audit of a $151 million programme to modernise Egypt's real estate finance market in 2009 found that while the market had improved since the programme began the growth was “not clearly measurable or attributable” to the aid efforts. A source acquainted with EU-funded projects in Egypt who asked to remain anonymous told the Weekly that last month a panel of European auditors had said that the EU had failed to guarantee that the one billion euro package for Egypt from 2007 to 2013 had been used effectively. The sum had been amalgamated with the general state budget, and due to a lack of transparency and corruption it was not known if it had been efficiently used. Amin, a consultant with aid-financed projects, pointed out that the success of the projects is often linked to the bureaucracy and the slow pace at which decisions are taken and implemented on the Egyptian side. He said that governments in Egypt during 2012 and 2013 had failed to reach agreement with many international donors, such as the USAID and the EU, on how to spend the allocated funds to Egypt from previous years. This failure could be explained by the repeated changes in ministers during these two years and the unwillingness of many ministers and senior officials to sign contractual agreements in general and with international donors and institutions in particular. A considerable number of post-revolutionary corruption investigations have been related to international cooperation projects. Another problem with the aid extended to Egypt, and in fact to all developing countries, has been that a significant part of it goes to benefit the donor countries. This includes the use of highly paid foreign experts whose salaries are deducted from the aid sums and importing supplies and equipment from these countries even if there are local alternatives. Amin said that while these shortcomings were true, “the foreign experts and staff working with these projects are much-needed high-calibre consultants and personnel. Imported supplies for aid projects are tariff-free, so their price might even be less than the locally assembled or produced equipment.” Coming with political strings attached is a problem that also makes aid bitter treatment, according to the anonymous source. “The US aid came as a reward for Egypt signing the peace treaty with Israel, and now it is used to put pressure on Egypt whenever US interests in the region are threatened,” he said. With its two components of military and economic aid, the US has used the aid to strengthen its relation with the Egyptian military and people, in addition to receiving preferential Suez Canal transit treatment for American warships. On the Arab level, there is talk that Qatar will now not continue its support for the Egyptian economy, since its ally of the Muslim Brotherhood is not in charge. Qatar was the only Arab country that extended aid to Egypt after Morsi came to power, when it pledged to give Egypt $7.5 billion in economic assistance. “The aid is important to Egypt currently, but it is not a panacea for long-term economic woes. The new cabinet has to start dealing with the country's serious fiscal problems. It has to do it as soon as yesterday,” the anonymous source said.
