Egyptian authorities plan to hold talks with Saudi Arabia, Kuwait and the United Arab Emirates to secure more aid and investments, a government official said, as the country seeks to ease a dollar crunch threatening to derail its nascent economic recovery.
The planned talks will focus on “areas of cooperation” including investments, development aid and possible foreign-exchange deposits at the central bank, as well the supply of oil and non-oil products, according to the official, who asked not to be named to discuss the plan. The official didn’t say when the talks will start or how much Egypt aims to secure.
The three Gulf Arab monarchies have provided tens of billions of dollars to support the Egyptian economy since the 2013 army-led ouster of Islamist President Mohamed Mursi after mass protests against his one-year rule. Fresh funds would provide crucial dollars needed for businesses to import capital goods and raw materials, and help authorities avoid an uncontrolled currency devaluation.
While aid has declined this year amid the plunge in global oil prices, it’s unlikely that Gulf allies would let Egypt slide into a balance of payments crisis, said Philippe Dauba-Pantanacce, senior Middle East, North Africa and Turkey economist at Standard Chartered Plc in London.
Still, Egypt “is facing an uphill battle,” he said as tourism suffers after the bombing of a Russian passenger plane over Sinai in October. “Tourism is by far the largest foreign currency earner.”
Egypt faces a foreign-currency squeeze that has fueled speculation that authorities would be forced to devalue the pound. The shortage has also caused private-sector business activity to contract the most in more than two years in November, according to the Emirates NBD Purchasing Managers Index.
“The fate of the Egyptian pound depends on the mobilization of external financing,” said Jean-Michel Saliba, London-based economist at Bank of America Merrill Lynch. “The market was doubting that there will be much more financing from the Gulf. The Gulf doesn’t want Egypt to fail but also wants” Egypt to reduce its reliance on aid, he said.
Egypt’s benchmark EGX 30 Index for stocks has dropped 26 percent this year, making it the fifth-worst performer among global equity measures tracked by Bloomberg.
Egyptian authorities have burned through billions in foreign currency reserves since 2011 to prop up the pound and maintain spending. Reserves stood at $16.4 billion at the end of November, enough to cover about three months of imports. The government is expected to receive $1.5 billion this month after signing loan agreements with the World Bank and the African Development bank.