What happened to the money?

Published on Al-Ahram weekly online, by Niveen Wahish, 26 January – 1 February 2012.

Billions of dollars in aid were promised to Egypt, alongside other Arab Spring countries, most prominently Tunisia, to help in their democratic transformation. The funding was promised by Gulf countries, the US as well as the G8. While the initial numbers are staggering, only $500 million actually came through, from Saudi Arabia and Qatar.  

Magda Kandil, executive director of the Egyptian Centre for Economic Studies, explains that the delay in the disbursement of pledges emanates from the fact that most of the funding promised is in the shape of investments and project finance. That means that the Egyptian side has to come up with projects that need financing, Kandil said, adding that that has been a major weakness so far. She pointed out that in Tunisia, possibly because they had a head start in stabilising their political situation, they were able to put together concrete projects and get started on the process, and as a result, pledges have begun to seep through.

Qatar had promised Egypt $10 billion, Saudi Arabia $4 billion, Kuwait $3 billion and the United Arab Emirates a similar amount.

The US said it would give Egypt around $2 billion. The G8, within the framework of the Deauville Partnership launched in May 2011, had said some $38 billion will go towards supporting political and economic transformation in Tunisia, Egypt, Jordan and Morocco. The Deauville Partnership was initially launched by G8 member countries but was later broadened to include Kuwait, Qatar, Saudi Arabia, Turkey and the UAE.

Speaking earlier this month Prime Minister Kamal El-Ganzouri said that due to the fact that foreign assistance was not forthcoming, the government had to revisit its resources and cut down its spending by around LE20 billion. The government’s main problem in the past year has been a gaping budget deficit. Although some officials had said the deficit could widen to around LE180 billion, about 12 per cent of GDP, El-Ganzouri said the government will take austerity measures to keep it within the original target deficit of LE134 billion or 8.6 per cent of GDP … //

… Deputy Secretary of State Bill Burns, who was in Cairo recently, had said there is widespread understanding of the importance of Egypt’s transition and its economic recovery, not just for Egypt but for the whole region today. Burns said a successful transition in Egypt is deeply in the interests of the United States, and that the US wants to do everything it can to help by continuing its assistance programmes and new initiatives. The US had said the $2 billion of assistance to Egypt will take the form of a debt swap and credit guarantees as well as an enterprise fund to help small and medium enterprises (SMEs) in Egypt.

The US wants to make sure Egypt is coming out of this bottleneck, explained Kandil. “They do not want to see money wasted without vision to pacify anger of the street. They do not want to give the money to a country that is divided. And they want to make sure democratic transformation is in place.”

And the same applies to the Deauville Partnership. The spirit of Deauville is to assist in the change process and support policies that promote freedom, dignity of the people and insuring social justice, said Franco. He asked that if hypothetically the transformation stops and the spirit is different, why would donors be willing to continue? The justification of the initiative, he explained, would no longer be there.

That being the case, Kandil recommended that Egypt focus on its priorities: stabilise the situation, help political transformation and align the economy towards the objectives of the revolution, namely job creation and justice in the distribution of income. She says the way to achieve those targets is through SMEs. “Big investments will still refrain from coming to Egypt so the only way to stimulate the economy and provide jobs is by encouraging SMEs and levelling the playing field for them.”

Egypt’s growth rate reached 1.8 per cent in fiscal year 2010/11. The Global Economic Prospects issued by the World Bank this month is optimistic that Egypt’s growth rate could reach 3.8 per cent growth rate in the current fiscal year but will drop to 0.7 per cent the next fiscal year. (full text).

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