RAYMOND, Maine — In March 2022, Saudi Arabia granted a $5 billion aid package to help Egypt develop “new financing channels with regional and international organizations.” Saudi Arabia’s assistance will bolster Egypt’s Extended Fund Facility (EFF) Agreement with the International Monetary Fund (IMF) to control its mounting debt and develop comprehensive economic policies. Egypt’s debt is overwhelming, thus limiting the internal economic support Egypt can provide to its poorest citizens, with as many as 32.5% of Egyptians living in poverty as of 2017.
Economic Status and Debt
Egypt’s economy has been in severe trouble since 2010. It was the year of the “Arab Spring,” a full summer of uprisings and anti-government protests throughout many Arabian nations. The Spring was to challenge some of the world’s oldest political regimes. The motivation for the protests stemmed from a desire to enhance human rights, socio-economic policies and do away with lingering political corruption. In Egypt, there were specific hopes of targeting rising food prices and living costs. The Arab Spring also began a new set of economic downturns for the country. The uprisings disrupted the Egyptian tourist sector, one of its most significant economic contributors. Tourism accounts for 15% of Egypt’s GDP. The COVID-19 pandemic also halted tourism and, since then, tourism has not reached the income and tourist presence of pre-2010.
Unfortunately for Egypt, the country appears to have slid backward economically. Since 2010, the Egyptian economy and debt, both internal and external, have worsened. External debt is money borrowed from international lenders and internal debt describes the amount lent within its border.
At the end of the 2020-21 fiscal year, Egypt’s total debt was $392 billion, with $137 billion in external debt, and $255 billion in internal debt. Egypt’s debt is almost seven times greater than it was at the end of the Arab Spring. The debt has become unmanageable and prices continue to soar in Egypt. Since the Spring, poverty has overtaken a third of the population due to the political turmoil, prices, struggling GDP and debt. The rising rates are why Egypt receives invaluable foreign aid services from its allies to gain control of its spiraling debt.
Egypt’s Partnership with World Bank
Egypt’s government and the IMF, a branch of the World Bank, have reached a staff-level agreement regarding in-depth, comprehensive new economic policies. The partnership is to be supported by a 46-month Extended Fund Facility (EFF) Arrangement of $3 billion.
An EFF is slightly different than the standard “Stand-by Arrangement” of the IMF, which calls for economic support during a period on a case-by-case basis. Egypt’s Extended Fund Facility includes a more extended time frame for the program and longer repayment periods. EFFs are extensive because the intent is to focus on the structural issues that plague the economy.
For Egypt, it is about tackling debt, budget management, governance and accountability and increasing governmental transparency. As an effect, the new policies should decrease prices and poverty while creating political stability to ensure events such as the Arab Spring do not happen again. Egypt’s Extended Fund Facility is a 46-month-long partnership. Egypt and the IMF expect the government to create long-lasting, sustainable economic improvement in that time. The aid that Egypt receives from foreign partners, the first of which is Saudi Arabia, only boosts the chances that the EFF will succeed.
Saudi Arabia’s Assistance to Egypt
Saudi Arabia has assisted Egypt economically before. The two nations have long been allies, and the events of the Arab Spring only helped to push the two nations together politically and economically. Saudi Arabia’s economic assistance aids Egypt’s Extended Fund Facility and will expand confidence in the new program’s potential. As Egypt receives economic aid from Saudi Arabia, the IMF believes it will help Egypt’s international economic standing. A solid international economic standing will invite other allies to invest in Egypt and the more aid Egypt receives, the greater chance it has of implementing the structural policy changes for economic growth.
Economic growth is critical for increasing the aid a nation’s government can provide. Aid can come in the form of public goods, programs or services, including, access to health care, education and decreased inflation rates, all leading to a decrease in poverty. Egypt’s assistance from the IMF and Saudi Arabia could help Egypt’s government get the economy back on track to decrease prices and poverty rates, starting with institutional changes. The aid Egypt receives could only improve the economic status of Egyptians across the nation and create a new structure that not only decreases but keeps the poverty rate down.
– Clara Mulvihill