Doha shores up Egypt’s finances

10 January 2013

Qatar is serious in building ties with Egypt’s leadership, but it is helping the country put off economic reform

Qatar has once again flexed its diplomatic muscle, with a second $2.5bn financial support package to Egypt.

The move is significant for two reasons. Firstly, it rescues Egypt’s perilous looking finances at a crucial stage.

A long-discussed IMF loan of $4.8bn had been close to being approved late last year until a political crisis over the new constitution, and a U-turn over tax rises and spending cuts, caused yet another delay.

Talks are now set to resume at the end of the January, but the government’s flip-flopping over the kind of reforms demanded by the IMF, coupled with the deterioration in the economic outlook, mean that much of the support plan may have been rewritten.

Qatar’s latest financial support could also give Egypt’s new rulers confidence that they can put off reform. That is likely to be a false hope. Another $2.5bn is significant for Egypt’s finances, but nothing compared to the size of the challenges facing the economy.

Secondly, it is yet another indication of how serious Qatar is in its intentions to build ties with Egypt’s new Islamist leadership, in contrast to the suspicions with which they are regarded elsewhere in the GCC.

The problem for President Mohamed Mursi is that having only just got over the constitutional crisis, he has little appetite for sparking a new one by trying to push through a wave of hugely unpopular economic reforms.

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