Qatar's loan for Egypt: Is this enough to rescue struggling economy?

Published August 12th, 2012 - 12:17 GMT
MENA reported that the loan was agreed to on Saturday
MENA reported that the loan was agreed to on Saturday

The Qatar government has loaned Egypt $2 billion in an effort to assist Cairo in bolstering its struggling economy, the official state-run MENA news agency reported on Saturday.

MENA reported that the loan was agreed to on Saturday during the first visit of Qatar’s Emir Sheik Hamad bin Khalifa al-Thani to Egypt since the ousting of former President Hosni Mubarak in February 2011.

The report said that al-Thani met with Egypt President Mohamed Morsi, in what many see as an effort to maintain positive ties with the wealthy Gulf country.

Egypt’s economy has suffered since dramatically since the popular uprising ousted the former regime. Egypt has asked the International Monetary Fund (IMF) for a $3.2 billion aid package, but talks with the financial body have stalled in recent months. Earlier this month, Egyptian government officials said they were looking to reboot talks with the IMF over the loan deal.

The country’s Finance Minister Mumtaz al-Saeed told reporters in early August that Egypt is interested in rebooting talks with the international financial body after they had dropped following uncertainty in the country.

The deal is seen as vital to assist Egypt in being able to avoid a budget and balance of payments crisis as well as deliver more credibility to economic reforms to boost the ability to attract investors.

“We have offered an invitation to the IMF delegation to visit Egypt in the coming period,” Saeed said without specifying when exactly the visit will take place. “And there is a probability that the head of the IMF would also come in the visit,” he added.

Last month, IMF officials hinted that a loan agreement would not be made this year, sparking worries that Egypt’s economic crisis could widen.

According to a report by Bloomberg business news agency, “the IMF requires approval from the biggest party in parliament,” the official said, speaking on the condition of anonymity because of the sensitivity of the talks.

“It’s disappointing, but at least it’s been announced against the stabilization of reserves,” Richard Fox, London- based head of Middle East and Africa Sovereigns at Fitch Ratings, said by phone to Bloomberg.

“If they can maintain reserve levels and continue progress toward political transition it’s not the end of the world. Still, the fact that things have been pushed back yet again isn’t positive.” The report comes less than two weeks after an aide to Egypt President Mohamed Morsi said the IMF deal was back on track.

“We intend to approach the IMF again,” said Amr Abu-Zeid, development finance adviser for the Muslim Brotherhood, in comments published by Reuters. “Give him one week or two weeks, so at least he has a cabinet … I believe these issues will not go further until they have a cabinet at least,” he added.

Egypt’s state-owned al-Ahram newspaper had reported that a deal was to be signed in June, but the IMF had urged certain procedures were needed in order for the loan to be granted.

Masood Ahmed, IMF director for the Middle East and North Africa, said in late May that Egypt still needed to do “some technical work” to finalize its economic program.

Masood has claimed there are three important steps that Egypt should take if it wants to go further in the loan procedure with the IMF, referring to the economic program, political support and alternative financial sources. “I think that process (of getting political support) is advancing but I do not think we are at the point yet where we could move forward.” “There’s still more work to be done to close down those three areas,” he said, referring the three important steps to secure the loan.

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