Arab allies Qatar and Libya gave cash-strapped Egypt a $5 billion double boost as the Arab world’s most populous nation struggles to secure an IMF loan to ease its deepening economic crisis.
Qatari Prime Minister Sheikh Hamad bin Jassim al-Thani said after talks with Egyptian Prime Minister Hisham Kandil that Qatar would provide an extra $3 billion on top of some $5 billion the Gulf state has already given Cairo, and would extend gas supplies to Egypt this summer as needed.
He told a joint news conference that Qatar, the biggest financial backer of Egypt’s Islamist-led government, “did not ask for anything in return” for its aid.
Hours later, Egypt’s state news agency MENA reported that neighboring Libya had signed an agreement to give Cairo a $2 billion five-year interest-free loan “to support the Egyptian economy and the state budget and foreign currency reserves”. There was no immediate official confirmation from Libya, Reuters reports.
Kandil said in a statement on his Facebook page that Qatar would buy $3 billion worth of Egyptian government bonds. He dismissed media reports that relations with Doha were strained over a series of tax and regulatory issues affecting Qatari banks seeking to acquire assets in Egypt.
The new financial injections will buy Egypt time as it seeks to avert social unrest over fuel shortages and food price increases during a long, hot summer in the run-up to parliamentary elections expected in October.
Before the loans, foreign currency reserves had dwindled to a low of $13.4 billion in March, less than needed to cover three months’ imports.
MENA quoted a finance ministry official as saying the Libyan deal would strengthen Egypt’s hand with the International Monetary Fund delegation, which has been in Cairo since last week.
But Western diplomats said it was no alternative in the longer run to an IMF deal, which could unlock up to $15 billion in multilateral and bilateral lending, and improve confidence for foreign and domestic investors.
Planning Minister Ashraf al-Araby said Cairo may ask the IMF to increase a previously requested $4.8 billion loan to help cover an increase in its budget deficit.
An IMF would require Egypt to make politically sensitive reforms of costly fuel and food subsidies and raise some taxes.
Araby acknowledged there would be social costs to implementing reforms required by the IMF but if Egypt did not reach a deal with the global lender it would be forced to resort to even stricter austerity measures.
Qatar has already provided $5 billion in loans, grants and deposits since Egypt’s Islamist President Mohamed Mursi was elected last June.
The government has already announced power cuts and energy saving measures such as closing Cairo airport’s two main runways for four hours every night during the summer.
Cairo must convince the IMF that it is serious about reforms including cuts in fuel and food subsidies and tax increases to curb an unaffordable budget deficit and boost growth.
The government reached an initial deal with the Fund last November and announced sales tax increases on 19 categories of goods as well as a tax on dividends and share gains.
The accord was frozen in early December when Mursi suspended the sales tax increases hours after they were officially published, bending to pressure in the face of protests ignited by political conflict over the extent of his powers.
Araby said that the government was now planning to raise sales tax on only six items – cement, iron, telecommunications, cigarettes, and alcoholic and non-alcoholic beverages.
Qatar was angered by Cairo’s decision to impose a 10 percent tax on investment gains from the takeover by Qatar National Bank of local lender National Societe Generale Bank, making QNB effectively overpay.
An Egyptian finance ministry aide said on Monday the government had decided to cancel the tax and would reimburse the revenue already levied to shareholders.
Egypt’s financial regulator is still holding up a proposed joint venture between QInvest, majority owned by Qatar Islamic Bank, and EFG Hermes, the Middle East’s biggest investment bank, which will expire if not approved by May 3.
The deal, which would place EFG’s main operations in a company 60 percent owned by QInvest, is politically sensitive in Egypt because both of EFG’s chief executives are on trial with the two sons of ousted President Hosni Mubarak over allegations of illegal share dealings in relation to a 2007 transaction.
Economists said flip-flops on taxation were causing uncertainty among investors. The sales tax increases published in the official gazette in December have yet to be canceled, and it is not clear how the government plans to raise the missing revenue.
“(This) is indeed causing a mess in the market as companies remain legally liable for the new rates, but, practically, the government is not collecting them,” Moustafa Bassiouny, an economist at the Signet Institute, told Reuters.
Bassiouny said Araby’s latest comments on tax increases showed how government policy was “inconsistent”.
Against most analysts’ expectations, Egypt’s urban consumer inflation eased to 7.6 percent in the 12 months to March, from 8.2 percent in the 12 months to February, statistics agency CAPMAS said on Wednesday.
Analysts said inflation was unlikely to continue to ease, however, given the depreciation of the Egyptian pound and planned subsidy cuts, and was likely to accelerate this year.