Sultan Ahmed Al-Jaber was in Cairo this week visiting projects funded by UAE assistance, including a railway bridge in Giza. Al-Jaber is the United Arab Emirates minister leading the UAE-Egypt task force handling development projects in Egypt. The bridge is one of four being constructed in the Giza area and will ease traffic congestion. It is part of some $4.9 billion in development assistance pledged to Egypt by the UAE in October 2013. Support from Kuwait, Saudi Arabia and the UAE has propped up the Egyptian economy since the ouster of former president Mohamed Morsi in June 2013. “It has allowed us to navigate the transitional period with peace of mind and given some stability to the currency because it has propped up the reserves, meaning that the Central Bank has been able to defend the currency,” explained Omar Radwan, head of asset management at HC Securities and Investment. Egypt's net international reserves (NIR) stood at $14.9 in June 2013. Radwan says that the three Gulf countries were responsible for the bulk of the $17 billion in foreign assistance that Egypt received in fiscal year 2013-2014. This included grants and deposits at the Central Bank as well as oil products. The Gulf assistance is continuing with generous support from the UAE. In August, the UAE government reached agreement with the Egyptian General Petroleum Corporation (EGPC) to provide around $9 billion in oil exports to the country, or some $700 million monthly. This covers almost half of Egypt's monthly needs of petroleum products at a time when hard currency is in short supply. The country's hard currency reserves stood at $16.8 at the end of September, according to the Central Bank of Egypt. Ahmed Galal, minister of finance during the interim period following Morsi's ouster, told the Weekly that Gulf and UAE support was necessary for Egypt's economy at the time that it was most needed, but this support in itself will not be enough for Egypt to achieve sustainable development. “To achieve this, Egypt must rely on its own resources in terms of human capital as well as productive and financial resources,” Galal said. He stressed that foreign assistance needs to be mutually beneficial in the form of investments, access to markets, and the transfer of technology. “These are the types of lasting support that are good for both the giving and receiving countries,” he said. UAE assistance helped support the Egyptian government's shift in economic policy, which began in July 2013, Galal said. Prior to that date, and ever since the 25 January Revolution, the economy had been suffering from a slowdown, the budget deficit was growing, and there was pressure on foreign reserves. “Demands were high and resources were limited and the economy itself was sluggish,” Galal said. The shift in July 2013 was intended to deal with these problems by following an expansionary policy, but additional resources were needed. While the government was able to finance a first stimulus package, UAE assistance enabled it to initiate a second package, with the funds used for investment in infrastructure and social programmes to ease the pressure on the poor, Galal said. The assistance stimulated the economy because these projects would not have possible without it, and the foreign funds reduced budgetary pressure. UAE development assistance has covered projects such as drainage, housing, health clinics, schools, vocational training and grain storage silos. It has also paid for buses for public transportation, energy supplies to remote villages, and restoration work at Cairo's Islamic Museum of Art. Since last summer, the UAE has also committed to supporting Egypt with soft loans, Galal said, adding that these have helped considerably because without them the government would have had to revert to more expensive borrowing from the markets. The favourable terms have allowed time for the Egyptian economy to recover, he said, noting that “it is easier to pay back debt when the economy is improving.” Radwan said that UAE assistance has been used to hire international expertise to advise on needed reforms to boost the economy. Lazards, a financial advisory and asset management firm, and Strategy &, formerly Booz & Company, a management consultancy company, have been hired by the UAE to advise Egypt on debt management and to develop investment strategies. The idea is that these firms will help attract investment at the international economic summit scheduled for February 2015 in Sharm El-Sheikh. The private sector has also contributed to the assistance. Arabtec, a Dubai-based contractor, signed a $40 billion deal in March with the Egyptian authorities to construct one million affordable homes in 13 cities in Egypt. The project is expected to be completed in 2020. Earlier this week the company agreed with the government that it would provide some housing units and public service buildings in return for the land on which the homes will be built and access to utility networks. According to Radwan, since the construction industry typically employs workers in 97 other industries, implementing such a huge project across the country will invigorate the economy as a whole and help create jobs. He is not worried about the accumulation of debt as a result of the support from the UAE. “The money that was borrowed from Qatar is already in the process of being returned,” he pointed out, referring to the $3 billion owed to Qatar after Morsi's presidency. The UAE oil products sent to Egypt could not be considered to be government debt, Radwan said, since they constitute debt owed by EGPC, an agency that has its own sources of revenue. According to Ministry of Finance figures, Egypt's gross external debt stood at $46.1 billion at the end of June 2014, compared to $43.2 billion a year earlier. Most of the increase is represented by aid from the Gulf countries, which was offered on preferential terms. Radwan said that the development project for the Suez Canal, the lifting of warnings for tourists coming to Egypt, and the upcoming economic summit in February will put the economy back on track and allow it to raise its own sources of foreign currency. Egypt is targeting a growth rate of 3.5 per cent in fiscal year 2014-2015 and six per cent in five years, the minister of finance recently told European ambassadors in Cairo. This recovery in growth is among the reasons that Moody's, the international credit ratings agency, this week upgraded Egypt's outlook from negative to stable. The firm said it had based its decision on improved political stability and fiscal consolidation, though it still expressed reservations regarding continued high fiscal deficits and government debt levels. Egypt's budget deficit hit 12.6 per cent in the last fiscal year but is targeted to reach 10.5 per cent in the current one. There are plans to bring the deficit down to between eight and nine per cent in five years.
