By the Blouin News Business staff

Gulf money could make things worse for Egypt

by in Middle East.

Egypt's interim President Adli Mansour (R) meets with UAE's National Security Adviser Sheikh Hazza bin Zayed Al Nahyan at El-Thadiya presidential palace in Cairo July 9. Photo: Reuters

Egypt’s interim President Adli Mansour (R) meets with UAE’s National Security Adviser Sheikh Hazza bin Zayed Al Nahyan at El-Thadiya presidential palace in Cairo July 9. Photo: Reuters

On Tuesday, Egypt’s political upheaval was correlated to the economy, as it hadn’t yet been since the ouster of Mohamed Morsi. (Even if the country’s delicate public finance situation is responsible for a large part of its ongoing problems.) Saudi Arabia and the United Arab Emirates pledged they would extend up to $5 billion and $3 billion, respectively, in aid to Egypt. Saudi Arabia promised $3 billion in cash and loans and an additional $2 billion worth of fuel, while the UAE offered a grant of $1 billion and a loan of $2 billion in the form of a no-interest deposit with the Central Bank of Egypt, according to WAM, Emirates News Agency.

Much needed money with, apparently, no compromises involved. The two Gulf States, known for their aversion towards the Muslim Brotherhood, hurried to welcome the ouster of Mohamed Morsi. A week later, they’re showing their support to the military through a juicy bailout. And the geopolitical ramifications of Egypt’s economic woes don’t end there. Qatar also plays a leading role in the picture, but appears to have erred in their calculations. They backed the Brotherhood’s emergence as a political force and insufflated it with money and promises, the latest one a $3 billion pledge in aid (Read more: Qatari money: the Brotherhood’s greatest asset –and liability.) A bad bet, it looks like. Qatar, for now, is trying to prove its compliance with the military-installed interim president, congratulating Egypt’s new president at the same time as Saudi Arabia and UAE did.

With the country in a situation still deeply precarious, the infusion of funds won’t be enough: it’s an unsustainable remedy for long-lasting structural problems. Egypt holds the honor of hosting the Middle East’s biggest budget deficit. In the first five months of 2013 alone, the deficit nearly doubled from the previous year to 113.4 billion Egyptian pounds ($16.2 billion), according to Finance Ministry figures. Foreign-exchange reserves have plunged from $36 billion in December 2010 to $14.9 billion in June (only about half of the reserves are in the form of cash or in securities that can easily be spent, according to Reuters.) The value of the Egyptian pound is at a record low, under 7 per dollar. Even its subsidized bread program is in danger, as the world’s largest wheat-importing nation is losing its ability to feed its 84 million people.

The other economic development of the day came with the announcement of a new prime minister, Hazem el-Beblawi. He is a prominent economist who served as finance minister during Egypt’s post-revolution army-administered transitional phase after the 2011 uprising. His appointment might be a piece of good economic news; it might equally be a piece if window-dressing from the military government.

It’s impossible to predict what will happen in the next weeks but even greater social unrest could result from continued economic failure. A focus on growth and unemployment — especially youth unemployment — should be the central elements of the new government’s economic plan. But with the Gulf States making such a political move, Egypt risks taking the $8 billion as a comfortable cushion in the transition process and failing to deal, again, with its pressing structural problems.