International financial bodies start to help Egypt economy

Egypt has secured a US$1 billion loan from the Islamic Development Bank, US$200 million from the World Bank while it started steps to resume negotiations for a US$3.2 billion loan with the IMF. This is an “Emergency Project to create jobs in Egypt” that the World Bank (WB) approved on June 28, projecting the creation of 250,000 jobs.

Alaa Hamed, team leader of this project within the World Bank, sees in this project an answer to the current recession in Egypt: “This project will provide assistance to communities most affected by the economic downturn. It will support income by launching major projects such as cleaning the canals and the rehabilitation of basic infrastructure, schools and rural roads. ”

The IMF has also offered assistance to Egypt on the same day. Christime Lagarde, Executive Director of the Fund, called to congratulate Mr. Mohammed Morsi. The IMF communiqué stated later that “they discussed the economic situation in Egypt and how the IMF could help in the coming period,” adding that Lagarde “has reaffirmed that the IMF stands ready to support Egypt and was looking forward to working closely with the [Egyptian] authorities.” Since the beginning of the year, the Fund has been negotiating with Egypt a plan for financial assistance of $ 3.2 billion backed by an economic reform program.

On July 1, Cairo got an assistance from another international financial institution, the Islamic Development Bank (IDB). It has pledged to release US$ 1 billion to help the Egyptian authorities to cope with the growing bill of oil and food imports. The article to support the prices of these products is one of the most expensive in the national budget.

The aid is much needed especially since Egypt is struggling to recover from the recession that followed the 2011 revolution. With a growth forecast to hit 4.1% for the second quarter of 2012, the Planning Minister Fayza Abouelnaga rules out the possibility of a quick recovery. For fiscal year 2012/2013, the Egyptian government forecasts a growth rate of 4 to 4.5%, but many economists expect it will reach no more than 1.6%.

The Egyptian economic policy is also torn between a sustained inflation, the limited fiscal capability and the sluggish economic activity. Yet, the economic structural reforms are one of the main faced by the new head of state.

Meanwhile, it seems the Egyptian foreign trade collapses. Figures for February 2012 indicated that the trade deficit increased by 138%, reflecting higher prices for petroleum products and steel. In total, according to data provided by the Ministry of Planning, the foreign exchange reserves are moving towards a drastic reduction of -44% between the first and second quarters of this year. The tourism rebound hopes are far from being paid off with exports of services fell by -9.7% in the second quarter of 2012, despite the arrival of summer.

While the election of the Islamist Mohamed Morsi as president of the republic was sometimes received as a disturbing signal sent to the international community , Inger Andersen, vice president of the World Bank for the Middle East and North Africa, believes the opposite: “We will continue to offer various programs to support Egypt in its historic transition. Our strategy reflects the commitment of new actors in Egypt to give priority to job creation and implementation of reforms to improve governance. The World Bank will continue of course to listen and is ready to meet new demands from the government. “