Egypt eyeing non-IMF funding

Cairo: While the Egyptian government will not rely much on a possible upcoming IMF loan, it is looking to additional financing from the EU, Gulf countries, African Development Bank and the World Bank, informed sources told Gulf News.

The sources said that Egypt’s government will not be obliged to withdraw the full amount of the $4.8 billion (Dh17.6 billion) loan being negotiated with the International Monetary Fund (IMF). It may only withdraw one or two instalments.

”We don’t intend to obtain the total value of the IMF loan, but the agreement itself would be an international certificate of trust that our economy is safe. It also would help the government to persuade international financial institutions to invest billions of dollars in Egypt,” Ahmad Al Najar, advisor to the Finance Minister told Gulf News.

“Many international organisations and institutions still insist that their funding, investments and assistance to Egypt are conditional on a full-fledged IMF programme,” Al Najar added.

Final approval

An official from the Egyptian Finance Ministry, who requested to remain anonymous, told Gulf News that the World Bank, the European Union, and the African Development Bank stipulate a final approval of IMF loan to provide aid to Egypt. He estimated size of this aid at about $7 to 8 billion.

“The EU and a number of European institutions promised Egypt after the fall of Mubarak a $5 billion aid package, but later retreated and required a final approval of IMF loan. The EU warned Egyptians that they may lose a package of European aid, estimated at about €5 billion, if they do not adopt concrete steps on the path of democratic reform,” the official added.

These statements may explain why Egypt rejected last March an interest-free $750 million loan, being offered under the IMF’s Rapid Credit Facility (RCF).

No sooner than the IMF offer was made, Finance Minister Al Mursi Hegazy rejected it. “Egypt is still focusing on the larger loan based on the economic programme the government had prepared. The smaller emergency loan is not in the cards,” Hegazy said.

For Egypt, it is not clear that the RCF loan will be able to unlock financing from bilateral donors and other financial institutions.

Hatem Saleh, Minister of Industry said that Suez Canal Axis Development Project alone could attract investments exceeding $50 billion, pointing out that signing an agreement with the IMF would ease convincing foreign investors to participate in such projects.

“We sign a final loan agreement with IMF, we will be able to obtain aid and attract investments exceeding $100 billion from international institutions,” confirmed Dr. Omar Abdul Fattah, an economist of Freedom and Justice Party (FJP), the political arm of Muslim Brotherhood.

“Also, the government is counting heavily on Sukuk’s (Islamic bonds) law to provide this funding easily,” Abdul Fattah added.

Institutional investors

Abdul Fattah revealed that institutional investors from Qatar, Turkey, China, and to a lesser extent, Kuwait, Bahrain and Western countries promised to pump funding in Egypt’s economy just the Sukuk’s law be activated.

Al-Azhar’s Senior Scholars Authority called on Thursday in a statement for amending some articles of the Sukuk’s bill approved by the Shura Council, the country’s temporary legislature, that clash with the Islamic principles.

The finance ministry has welcomed Al Azhar’s (Egypt’s leading religious institution) statement.

“Al Azhar’s observations are ameliorative notes and do not disturb the law,” said Al Najar, Finance Ministry advisor, expecting that the meant articles will be put in consideration by the Shura Council.

Finance Minister Hegazy confirmed that the final approval of Sukuk’s law and also the trend towards PPP projects (Public-Private Partnership) provide new mechanisms to attract foreign investments, which is confirmed by the world increasing interest to invest in Egypt’s PPP programmes.

“If Sukuk become a staple source of sovereign funding, it would have a positive spillover effect on the state budget as 25 per cent of annual spending is debt servicing. The accrued interest savings could then theoretically be allocated to higher-multiplier, job-creating capital expenditures like infrastructure and education. Up to $10 billion can be raised annually from Sukuk to fund the country’s twin fiscal and balance of payment deficits,” Hegazy added.

Even some experts see that guidance aggressive and suggesting an overestimation of both domestic demand/capacity for Sukuk, as well as Egypt’s access to international financing.

Ayman Sharaf is a journalist based in Cairo