Saudi $4 bln lifeline to Egypt won’t come for free

May 23, 2011

By Una Galani
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

DUBAI — Autocratic governments can act faster than multi-lateral financial institutions. Saudi Arabia’s $4 billion lifeline to Egypt comes just as the country is still discussing an aid package with the International Monetary Fund and the World Bank. Cairo has hinted it wasn’t ready to accept the conditionality attached to both bodies’ financial help, usually in the form of stringent fiscal discipline. But it’s unlikely that Saudi money will come with no strings attached.

The Saudi package, in the form of soft loans, credit lines, bond purchases, and central bank deposits, dwarfs the financial assistance pledged last week by Barack Obama in his “Arab spring” speech. It will make the kingdom one of Egypt’s largest external creditors.

Details on the funding are scarce, but together with the $2 billion-plus support from the United States, partly in the form of debt relief, Egypt is roughly half way to plugging what it estimates could be a funding gap of up to $12 billion until mid-2012. The rest is expected to come from the IMF and World Bank.

Modest by Saudi standards, the investment nonetheless is a huge step up in the financial relations between two countries which haven’t always seen eye-to-eye. They have been at odds over Islamic fundamentalism and secular nationalism, played out through a proxy war in Yemen. Official Saudi loans to Egypt amounted to just $308 million at the end of December — less than one percent of the country’s total external debt of $34 billion. If influence is proportionate to money spent, Saudi would rank in Egypt next to America, which has significantly shaped political policy in the country over the years.

The question is what Saudi wants in return. Loans from international institutions are expected to be aimed at supporting inclusive growth and the transition to democracy and an open market economy. But the House of Saud supported Mubarak and doesn’t share the democratic ideals of revolutionary Egyptians. Still, it has a big interest in the stability of its neighbour, the region’s most populous Arab nation.

It’s still unclear which political forces the Saudis would support in Egypt, where elections are due later this year or in early 2012. For now Riyadh seems mostly to be trying to stay on the safe side of any future government.

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