As the Egyptian pound sunk to record lows on the unofficial market last week, it received a lifeboat in the form of a $4bn aid package from the United Arab Emirates (UAE). The announcement was made during a state visit by Abu Dhabi Crown Prince Sheikh Mohamed bin Zayed Al-Nahyan on Friday. The aid package is to be divided between a $2bn deposit into Egypt’s central bank and another $2bn to be invested in developmental projects.
News of the central bank deposit transformed the foreign exchange market, making the Egyptian pound strengthen to EGP10.7 versus the US dollar after touching a record low of EGP11.5 per US dollar on the unofficial market the previous week.
The government has been trying to maintain the official rate unchanged at EGP8.88 per US dollar for its weekly foreign exchange auction that is directed towards financing import operations of industries and groups. Last week, the central bank governor went on prime time television to deny market rumors of yet another devaluation of the Egyptian pound on the official market.
The UAE along with Saudi Arabia and Kuwait have emerged as the primary financial backers of Egyptian President Abdel Fatah El Sisi after the defence minister toppled Islamist former President Mohamed Morsi in a military coup. Since 2013, the three Gulf Arab states pumped a combined $30bn into the Egyptian economy in the form of aid, deposits and investments, shoring up Egypt’s deteriorating balance of payments.
The upcoming UAE deposit would boost Egypt’s net international reserves that stood at $16.5bn at the end of March, enhancing the government’s ability to repay a $1bn deposit to Qatar when it comes due this summer and make a $700mn debt service payment to the Paris Club of creditor nations in July.
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