There are few Egypt’s president can rely on more in these economic hard times than his band of Islamist brothers.
Key financial supporters from Islamist-led governments have come through with cash injections at times of extreme economic hardship, when Mohammed Morsi faced a spike in inflation and subsequent social unrest.
Egypt’s Islamist groupies, including Qatar, Turkey, Saudi Arabia and Libya have all together offered the country $10bn, partly to boost the Central Bank’s coffers, partly to help with energy imports
The Gulf state has doubled financial aid to the Egyptian government with an additional $2.5bn, on top of a previous $2.5bn in deposits. While the Qatari finance minister has dampened any prospects of further aid in the short-term, this should not be mistaken for the Gulf state backing away from assistance to Egypt.
Qatar has put its money where its mouth is, and to shift its focus away from Cairo now after pouring billions of dollars into the country would undermine the Gulf state’s investment decision.
Turkey has deposited $1bn of the $2bn aid package it pledged last September. It is aimed at helping Egypt finance infrastructure projects and increase its dwindling foreign currency reserves.
Last year, the Kingdom deposited $1bn into Egypt’s central bank at a time when Egypt’s reserves plunged 60% from pre-revolution levels. The deposit included $500m to finance high-priority development projects, $250m for buying petroleum products and a $200m grant for small and medium-sized projects and industries. Since then, Saudi Arabia has remained on the sidelines. Tensions are running high between the two countries after the arrest and sentencing of an Egyptian human rights lawyer to 5 years in prison and 300 lashes caused an outcry in Cairo.
Libyan officials this week said they were completing an agreement to deposit $2bn in Egypt’s Central Bank. The transaction, which has since been denied, is being seen as a quid pro quo agreement involving Egypt’s arrest of several Gaddafi loyalists. What has been confirmed and is worth a similar amount is a transaction that will see Egypt import 900,000 barrels of oil a month from Libya starting in April.
But this generosity, however unwavering, is unsustainable.
As the FT’s Middle East editor Roula Khalaf puts it:
This unconditional assistance has no chance of boosting confidence or putting the economy on a more sustainable track unless accompanied by political commitments.
In fact, propping up the budget this way only serves to artificially cushion the Muslim Brotherhood and allows them to delay an economic reform plan.
Because after all, what’s the point of importing Libyan oil to feed an addiction to energy subsidies? Why support the Central Bank’s reserve pot when the country has struggled to put forward an economic plan that will safeguard future reserves?
This is why other countries have been wary of pouring money into Egypt, and in so doing, unfairly legitimising the Morsi administration at a time of political division.
Without such budgetary support, the Brotherhood would be forced to be more conciliatory toward opposition groups and find compromises. Otherwise, they risk being voted out of office for failing to stop an economic backslide.
It’s important to differentiate between aid to Egypt and budgetary support for Mohammed Morsi and his government. These are not mutually exclusive.
While Islamist governments such as Qatar and Libya may believe unconditional support will allow the Brotherhood to hold onto power, international donors should not withhold aid to Egypt’s people who are facing the very real possibility of chronic food and fuel shortages. It is possible for donors to provide support to Egypt (for example by investing in key youth programmes and infrastructure projects) without propping up the Brotherhood.
What is clear is that instability in Egypt will not bode well for the region, nor for donor countries who need economic and political stability in Cairo.