x Abu Dhabi, UAESaturday 20 January 2018

EU approves €6.4bn aid package for Egypt

Arab Spring economies: European Investment Bank and the European Bank for Reconstruction and Development to each provide €2bn, with the remainder coming from EU member states.

The European Union approved a €6.4 billion (Dh29.92bn) aid package for Egypt. AP Photo
The European Union approved a €6.4 billion (Dh29.92bn) aid package for Egypt. AP Photo

Facing widespread criticism about the Egyptian government's lack of urgency in jump-starting the economy and answering last year's revolutionary calls for social justice, the prime minister has taken the offensive this week with more details about Egypt's reform plans.

The details were revealed as the European Union approved a €6.4 billion (Dh29.92bn) aid package for Egypt. A statement by the president Mohammed Morsi's office said the European Investment Bank and the European Bank for Reconstruction and Development would each provide €2bn. The remainder would come from EU member states, the statement added. The announcement came after Mr Morsi held talks with the EU's foreign policy chief, Catherine Ashton, in Cairo.

Winning support for the economic reform package from Egyptians is an important prerequisite for clinching a US$4.8 billion (Dh17.63bn) loan from the IMF this month, which will provide a boost to the budget and give the country a seal of approval that could pave the way for more support from donors and lenders.

Hisham Kandil, the prime minister, gave his most detailed speech about the economy on Tuesday, saying that the government is aiming for a 3.5 per cent GDP growth rate this fiscal year and as high as 4.5 per cent in the next cycle. The current rate is about 2.2 per cent.

Incrementally cutting back energy subsidies - which eats 20 per cent of the budget annually - and introducing broader taxes would increase funds for economic development and bring hundreds of thousands of new jobs, he said.

Egypt and the IMF were expected to sign a memorandum of understanding about the loan as early as this week, said officials.

But some activist groups pushing for more economic progressive policy and former government officials said that Mr Kandil's speeches did not answer more detailed questions about where Egypt is heading.

"We hear a lot of generalities from the current government and ambitious goals," said Samir Radwan, a developmental economist who served as Egypt's minister of finance from February to July last year.

"But I don't think they have a vision for the economy and how to achieve the objectives because of insufficient economic expertise from the cabinet … It feels like shifting sands."

Ahmad Shokr, a founding member of the Popular Campaign to Drop Egypt's Debt, said that the government's economic reform plan appeared to be more directed at pleasing the IMF's economists than changing the economic system to suit the needs of Egyptians.

"We see the plan as shifting the burden of reducing the budget deficit on to the poor, while causing as little problems as possible for the rich and investors," he said. "We are advocating for more transparency about the plan and a discussion about what is the objective of the reforms. The calls for social justice need to be taken seriously."

The group sent a letter, co-signed by several liberal and socialist political groups, to the prime minister and IMF director Christine Lagarde opposing the loan earlier this week.

The prospect of obtaining a loan from the IMF has been controversial since the idea was first floated in the aftermath of the uprising last year.

At first, negotiations were stalled because Islamist political groups led by the Muslim Brotherhood's Freedom and Justice Party refused to sign on without more details about Egypt's reform plans. The tactic was seen at the time as a political bargaining chip with the military, which was then in control of the government.

But after the long-time Brotherhood member Mr Morsi became president in June, his government has sought to reopen negotiations for an even larger loan.

"The ironic thing is the plan put forward by the prime minister is the same one we drew up last year," said Mr Radwan. "All they did was pull it out of the drawer."