Interpreting Middle East Economic News and Analyzing Market Trends

Qatar backtracks on aid to Egypt, Libya joins in and gives Egypt $2 billion interest-free loan

Qatar has had a change of heart on giving more aid to Egypt.  Last month, Qatar announced that it was not going to give Egypt additional aid after pumping $5 billion into the country.  See our earlier post on this here.  Libya also joined in and is giving Egypt a $2 billion interest-free loan, which would have been unheard of before the Arab Spring.  Here’s the story from Reuters:


Arab allies Qatar and Libya gave cash-strapped Egypt a $5 billion double boost on Wednesday as the Arab world’s most populous nation struggles to secure an IMF loan to ease its deepening economic crisis.

Qatari Prime Minister Sheikh Hamad bin Jassim al-Thani said after talks with Egyptian Prime Minister Hisham Kandil that Qatar would provide an extra $3 billion on top of some $5 billion the Gulf state has already given Cairo, and would extend gas supplies to Egypt this summer as needed.

He told a joint news conference that Qatar, the biggest financial backer of Egypt’s Islamist-led government, “did not ask for anything in return” for its aid.

Hours later, Egypt’s state news agency MENA reported that neighboring Libya had signed an agreement to give Cairo a $2 billion five-year interest-free loan “to support the Egyptian economy and the state budget and foreign currency reserves”. There was no immediate official confirmation from Libya.

Kandil said in a statement on his Facebook page that Qatar would buy $3 billion worth of Egyptian government bonds. He dismissed media reports that relations with Doha were strained over a series of tax and regulatory issues affecting Qatari banks seeking to acquire assets in Egypt.

The new financial injections will buy Egypt time as it seeks to avert social unrest over fuel shortages and food price increases during a long, hot summer in the run-up to parliamentary elections expected in October.

Before the loans, foreign currency reserves had dwindled to a low of $13.4 billion in March, less than needed to cover three months’ imports.

MENA quoted a finance ministry official as saying the Libyan deal would strengthen Egypt’s hand with the International Monetary Fund delegation, which has been in Cairo since last week.

But Western diplomats said it was no alternative in the longer run to an IMF deal, which could unlock up to $15 billion in multilateral and bilateral lending, and improve confidence for foreign and domestic investors.

Planning Minister Ashraf al-Araby said Cairo may ask the IMF to increase a previously requested $4.8 billion loan to help cover an increase in its budget deficit.

An IMF would require Egypt to make politically sensitive reforms of costly fuel and food subsidies and raise some taxes.

Araby acknowledged there would be social costs to implementing reforms required by the IMF but if Egypt did not reach a deal with the global lender it would be forced to resort to even stricter austerity measures.

 Read the full story from Reuters.


This will certainly give Egypt a better chance at a security the IMF loan, but as we have stated in earlier posts, here and here, IMF loans will not be in Egypt’s best interest.  As for Qatar’s generous help, just as they backtracked on not giving Egypt more aid, they will also backtrack on “not asking for anything in return.”  There is always a price for “free” money.