Egypt is mistaken to snub international aid. Cairo’s decision to turn down over $3 billion in aid from the International Monetary Fund – and a possible $2 billion more from the World Bank – satisfies the strong anti-IMF sentiment in the country where the institution has won hate for its past praise for the old regime.
But it also concentrates financial risk. For a start, Cairo’s rebuff leaves it drawing on an even higher ratio of aid from undemocratic Gulf donors that have their own foreign policy goals. Qatar and Saudi Arabia have pledged roughly $14 billion, dwarfing the $2 billion offered by the U.S., though many questions remain over if, when, and how the bulk of the Gulf aid will be channeled.
The IMF funding was small relative to the scale of the Egypt’s projected fiscal deficit, originally forecast at 11 percent of GDP, or $29 billion. But it was reliable and came with few strings attached. In terms of direct budget support, Qatar has “gifted” just $500 million with Cairo claiming that Saudi Arabia has offered a similar amount.
True, shaving $4 billion off planned spending in the budget for the coming fiscal year starting in July, and lowering the deficit to 8.6 percent of GDP, or around $22 billion, should compensate for turning down $3 billion from the IMF.
Egypt is stabilizing
Foreign reserves fell only $800 million in May, out of a total $15 billion since the start of the year. But question marks still hang over the currency. And there’s no guarantee a new government will be in place in September, to insure that major funding decisions are backed by democratic legitimacy.
However good it feels, “no” to the IMF isn’t the right answer.
Una Galani is the TMT, mining and the Gulf correspondent for Reuters Breakingviews.
