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Why unconditional Gulf financing for Egypt is dwindling

Why unconditional Gulf financing for Egypt is dwindling
5 min read
15 February, 2023
Analysis: Sisi has relied on financial aid from Gulf states to stabilise his regime since 2013, but amid Egypt's economic crisis there is a growing reluctance to continue investing.

Egypt's Arab Gulf partners have shown waning interest in aiding Cairo amid its uncertain fiscal outlook as it struggles with a mounting economic crisis.

It seems that the era of Egypt receiving unrestricted funding, particularly from Saudi Arabia, may have come to an end, amid rumours of a rift.

In January, the International Monetary Fund (IMF) encouraged Egypt’s Gulf Cooperation Council (GCC) allies to do more to assist Egypt financially.

Just before that, the IMF approved Cairo's application for a $3 billion Extended Fund Facility agreement for a 46-month period in order to preserve macroeconomic stability, rebuild buffers, and clear the way for inclusive and private sector growth in Egypt.

As a result, growth is expective to progressively improve while inflation is expected to converge to approximately 7 per cent by the fiscal year 2024-25.

However, the Washington-based lender, which demands reforms as conditions for its financing, also said Gulf financing would be key along with the ability of GCC states to roll over $28 billion in deposits to the Egyptian central bank.

Yet given the global economic slump and their determination to restructure their own economies, the IMF's efforts come at a time when prominent GCC member states, particularly Saudi Arabia, are eager to review how their money is spent both domestically and overseas.

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“We used to give direct grants and deposits without strings attached and we are changing that," Saudi Finance Minister Mohammed al-Jadaan said at the World Economic Forum in Davos in January.

“We need to see reforms. We are taxing our people. We are expecting also others to do the same, to do their efforts. We want to help but we want you also to do your part.”

Abdel-Fattah el-Sisi’s government has relied on aid from Gulf Arab nations to stabilise his regime, namely Saudi Arabia and the United Arab Emirates (UAE), since assuming power after the 2013 coup.

It is estimated that over $100 billion in Gulf funds have flowed to Cairo in the form of Central Bank deposits, fuel assistance, and other forms of aid since that time.

The Egyptian Pound collapsed in January to an all-time low. [Getty]

“There appears to be some reluctance on the behalf of Saudi Arabia and perhaps even Kuwait to continue to commit to Egyptian assistance without greater conditionality on how the money is spent,” Kristin Diwan, Senior Resident Scholar at the Arab Gulf States Institute in Washington (AGSIW), told The New Arab.

“Both countries have their own ambitions as well as domestic pressures to spend at home and are reluctant to court public anger over foreign largesse,” she added.

“Saudi Arabia may have a second complaint with the Egyptian leadership dragging its feet in completing the transfer of the Tiran and Sanafir islands to Saudi Arabia,” Diwan said. “These are to be part of the broader NEOM Red Sea projects which are of high priority for Mohammed bin Salman.”

Although both Riyadh and Cairo expressed their mutual support for various regional and international issues in January, speculation over a deeper rift between the two countries has emerged after various Saudi writers criticised the Egyptian authorities over the army’s role in restricting economic development.

Parts of the Egyptian press had hit back, with one editor of a state-run newspaper editor denouncing the critics as “lowlifes” and “dwarves”.

Despite this war of words within the media, Sisi has sought to downplay concerns over a rift and accused social media outlets of stirring up trouble between Cairo and "issues related to our relationship with our brothers". 

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Dr Andreas Krieg, a senior lecturer at Kings College London, says that while there is no profound rift, “the readiness of the Gulf states to invest money without strings and conditions attached is diminished”.

“Riyadh has publicly declared that it will not invest money in Egypt unconditionally as Saudi Arabia is in a process of hyper-development itself requiring it to invest monies sensibly and possibly domestically,” Krieg told The New Arab.

“Considering that bin Salman started on a huge anti-corruption ticket, it would send the wrong signal to invest state funds into a failing economy in Egypt burdened with corruption,” he added.

“Qatar and the UAE have been hesitant to blindly invest in Egypt to stabilise the Sisi regime. They selected their own profitable projects to invest in or agreed to monetary vehicles such as currency swaps to stabilise Egypt's economy,” he added.

Sisi has relied on aid from Gulf Arab nations to stabilise his regime. [Getty]

Like Riyadh, the UAE has also been a key backer of Sisi’s regime. Yet this was at a time when Saudi Arabia and Abu Dhabi were keen to counter the Arab Spring revolutions across the region, and when displacing Egypt’s Muslim Brotherhood government in 2013 was a priority for them.

Given the changing geopolitical dynamics and Saudi Arabia’s newfound foreign policy alignment, Riyadh has most recently sought to invest in projects that offer better returns on their investment.

Elsewhere in Africa, for example, in the past year Riyadh had deepened its investments in green hydrogen projects. These have been seen as better-placed financial investments which meet Riyadh’s commitments to its clean and renewable energy goals while being a more effective use of soft power across the continent.

Simultaneously, Saudi Arabia’s Public Investment Fund (PIF) also set up investment firms in Jordan, Bahrain, Sudan, Iraq, and Oman, with a combined worth of up to $24 billion.

Riyadh had reportedly offered to build a football stadium in Egypt should it support Saudi Arabia’s 2030 bid to co-host the FIFA World Cup with Cairo and Greece, according to Politico, though the tournament would mostly be held in Saudi Arabia.

Riyadh has also sought to become a leader in investing in popular sports, including world championship boxing matches, Formula 1, and Premier League football.

Ultimately, however, until Egypt makes the desired reforms to its economy and state, unconditional Saudi and GCC funds may continue to dry up.

“We are in a period of nationalism and the ‘Saudi first’ mindset means there is much less patience for development cooperation if Saudi Arabia doesn’t benefit,” said Diwan.

Jonathan Fenton-Harvey is a journalist and researcher who focuses on conflict, geopolitics, and humanitarian issues in the Middle East and North Africa

Follow him on Twitter: @jfentonharvey