As Qatar prepares to credit the first installment of its $2 billion deposit into Egypt’s central bank, the former Egyptian finance minister is hoping that further foreign investment and a loan from the International Monetary Fund could help pull it out of a tailspin after 18 months of political turmoil.
Alongside news of the arrival of an IMF mission in Cairo this month to resume talks with the government over a proposed $3.2 billion loan, former minister Samir Radwan said that he expects the IMF to demand that Egypt devalue on the Egyptian currency.
The IMF has demanded any loan has broad political support at home but political tensions and continued instability have delayed any agreement and the bargaining has been ongoing since last April.
But the IMF has said it cannot extend the requested loan as long as Egypt refuses to devalue its national currency unit and stop subsidizing its fuel and food producers.
Meanwhile, despite hailing Qatar’s $2 billion injection, former minister Radwan said it was time for “new steps” on the country’s fiscal front.
“We hope that new steps will follow, such as injections into investments or direct investments into the stock exchange,” Radwan told Al Arabiya on Sunday.
Radwan explained that Qatar had previously injected $500 million into Egypt’s state budget, an amount separate to the $2 billion recently announced.
The latest pledge from Qatar is one of several disbursements by the emirate to help out governments across the Middle East and North Africa since the Arab Spring.
Egypt’s foreign reserves began a steep decline last year when a popular uprising that toppled Hosni Mubarak led the central bank to start selling dollars to prop up the country’s pound.
Radwan noted that financial talks with Qatar had begun in 2011, when an Egyptian delegation visited the emirate during the beginning of the uprising.
“We were hugely welcomed and the purpose was to begin discussions on helping Egypt,” Radwan said.
When asked whether the $2 billion sum had been initially expected to be larger, the former minister said: “At the meeting, we agreed on a $10 billion sum, comprising of deposits, direct investments and stock exchange and state budget support.
“Until now, we have received $500 million which has been injected into the budget and there has been a new agreement on the $2 billion deposit,” Radwan explained.
The economy now faces a balance of payments crisis and is being further undermined by high state borrowing costs, and experts say financial aid is urgently needed to avoid currency devaluation.
“Despite the deposit supporting the Egyptian currency and it being welcomed by the central bank, it does not inject funds into the Egyptian economy because it has been put as a deposit which cannot be spent or used for investment,” the former minster said.
Radwan explained that Egypt will not pay an interest rate on $2 billion sum because of the nature of the deposit structure.
The deposit will increase Egypt’s foreign exchange reserve by $2 billion, noted Radwan. The country’s foreign reserves fell to $14.42 billion in July from $15.53 billion in June.
The Qatari deposit will also ease pressure on the Egyptian currency, which has been dwindling as a result of the political turmoil, explained Radwan.
Qatar is expected to deposit $500 million, the first installment of the deposit, in Egypt’s central bank within a week, the current Egyptian finance minister told Reuters on Monday.
The deposit follows a meeting in Cairo between Qatar’s Emir Hamad bin Khalifa al-Thani and Egypt’s President Mohammed Mursi.
Saudi Arabia also stepped in with financial support in June, approving $430 million in project aid for Cairo and a $750 million credit line for oil imports.