Africa Watch – Foreign aid

25th March 2024

Lat Monday, the World Bank Group said it intends to provide more than $6 billion of support over the coming three years to Egypt, with $3 billion going towards government programmes and $3 billion to the private sector. Egypt, which has been struggling with a foreign currency crunch and gaping budget and balance of payments deficits, on 6 March, signed a loan agreement with the International Monetary Fund (IMF). The agreement expanded IMF support to Egypt by $5 billion and by an announcement on Sunday of $8.1 billion euros in financing from the European Union.

Egypt at a glance. Image source: The Economist

Many Nigerians wonder why Egypt gets a lot of global support. The international community’s extensive support for Egypt does transcend purely economic considerations. Egypt’s strategic importance as a regional and global player significantly influences the willingness of international lenders to provide aid. Egypt plays a central role in maintaining stability in the Middle East. The fluidity of global trade is also a factor: the Suez Canal, a vital waterway for international commerce, transits through Egypt. Ensuring the canal’s smooth operation is essential for the global economy. In other words, Egypt won the geographical lottery.

In July 2023, Egyptian Minister of Finance Mohamed Maati disclosed that the debt-to-GDP ratio was projected to hit 97 percent in the summer, marking a significant 16.8 percent surge from June 2022. Egypt’s external financing requirements for the years 2023 and 2024 are estimated to be at least $41.5 billion, excluding the $14 billion owed to its Gulf allies, which is anticipated to be refinanced. The debt acquisition is expected to rise further following the recent substantial agreement between Egypt and its Gulf partners.

The Egyptian economy has been struggling for the last part of the past five years despite the floating of the pound, which has shed much of its value. Its foreign exchange crises remain. The Carnegie Endowment suggests that one potential factor contributing to this situation is the drain on state resources caused by military-owned businesses. These tax-exempt enterprises, which operate with undisclosed financials, create a fragmented economic environment. President Sisi stated in 2016 that the military’s share of the Egyptian economy ranges from 1.5 to two percent, equivalent to $2.39 billion to $4.46 billion. This fragmented landscape enables the regime and its allies within the state bureaucracy to divert public funds and hide corruption, thereby diminishing the parliament’s oversight of public spending.

The World Bank Group pledged more than $6 billion in aid to Egypt over the next three years to bolster the country’s struggling economy by helping to address Egypt’s foreign currency shortage and sizable budget deficits. Half of the allocated funds will directly support Egyptian government programmes, while the remaining portion will be directed towards the private sector. The World Bank’s sizable support package comes amid ongoing negotiations with the International Monetary Fund (IMF) for an expanded loan programme.

Nigeria, Africa’s most populous country and economic powerhouse has the potential to become a critical strategic partner for the international community, so it can also attract the level of support Egypt gets. Its vast resources, geographical position, and growing influence can significantly contribute to global security, trade, and diplomacy, but it has to deliberately position itself for this by providing leadership in regional peacekeeping efforts and counterterrorism operations in West Africa. If Nigeria makes proper use of its vast diplomatic network and understanding of the continent’s complexities (which it clearly hasn’t done in the recent spat with its Sahelian neighbours), Nigeria can be seen as the key medium for constructive engagement needed to reach mutually beneficial agreements even in matters not directly related to it.

Regarding Egypt, the question of how it plans to repay these loans is a source of ongoing concern, given its precarious position on the verge of default. But that does not change the fact that Egypt is vital to global trade stability.