Egypt looks to Gulf monarchies to finance budget deficit

Egypt looks to Gulf monarchies to finance budget deficit

Egyptian Finance Minister Samir Radwan announced Saturday that Egypt will no longer seek loans from the World Bank and International Monetary Fund (IMF). Radwan’s statement came in spite of an agreement reached earlier this month for a $3 billion, 12-month loan from the IMF, headed — as of yesterday — by France’s Christine Lagarde.

Egypt’s decision follows major budgetary revisions that put the North African country’s budget deficit for 2011-2012 at 8.6 percent of GDP, down from 11 percent in the initial draft.

Explanations for the shift ranged from "pressure of public opinion," according to one advisor to the finance minister, to more attractive sources of funding — namely, "gifts" from Gulf monarchies like Qatar and Saudi Arabia.

"Egyptians are a little leery of too much intervention from the West," said Marina Ottaway, director of the Middle East program at the Carnegie Endowment for International Peace. The World Bank and IMF are widely associated with American influence in the region, and with ousted strongman Hosni Mubarak, who undertook substantial IMF-led economic reforms in the 1990s.

Egyptian distrust of international lenders may also be directly related to IMF and World Bank policy outcomes. Samer Shehata, a professor of Arab politics at Georgetown University, noted in a recent Marketplace interview that "Over the last decade … the World Bank and the International Monetary Fund have focused more on macroeconomic indicators than on how real people in these countries are doing."

They pushed neoliberal policies like deregulation, subsidy cuts, and privatization, according to Shehata, and promised high growth rates and robust levels of foreign direct investment. "Yet these same policies … simultaneously produced high inflation and declining real wages, and increasing levels of poverty and income inequality, according to the World Bank and IMF’s own statistics."

The Gulf money comes without these types of policy prescriptions and without the political baggage associated with accepting Western aid. According to Ottaway, "Much of [the Gulf money] will come as cash injected directly into the banking system. Money with no economic conditions attached. In this way it is preferable."

But while Saudi and Qatari money comes without traditional economic constraints, it is almost certainly not without strings attached. "Gulf states like Saudi are giving money because they want to keep Egypt in their orbit," said Ottaway. "There is no doubt that Saudi Arabia doesn’t want Egypt to emerge [as a regional power] like it did under Nasser."

Increased potential for graft is also a concern among analysts. Lisa Blaydes, an assistant professor of political science at Stanford University and the author of Elections and Distributive Politics in Mubarak’s Egypt, told FP in an email that Gulf aid will probably be in the form of "soft" or cut-rate loans. "There will almost certainly be less transparency associated with a loan of this type than with IMF funding," she said.

Una Galani, writing for Reuters, had a similar take: "many questions remain over if, when, and how the bulk of the Gulf aid will be channeled."

All concerns aside, Egypt’s willingness to blow off the IMF — a traditional seal of approval looked to by other lenders — signals a sea change in the international lending market. With wealthy countries like Saudi Arabia and, indeed, China handing out soft loans, there are many more options available to aid supplicants. In Ottaway’s words, Egypt’s decision is "part of a general pattern where international financial institutions have lost their monopoly."