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Thursday, 31 March 2022

Saudi Arabia pledges USD 15 bn to support Egypt through Ukraine crisis

Saudi Arabia has deposited USD 5 bn with the Central Bank of Egypt (CBE), state-run Saudi Press Agency reported yesterday, as our Gulf neighbors move to help shore up our finances amid global fallout from Russia’s war in Ukraine. The deposit has a one-year maturity and could be rolled over, Bloomberg Asharq reports, citing a source with knowledge of the transaction.

In parallel, the Saudi sovereign wealth fund is looking to invest USD 10 bn in Egypt’s healthcare, education, agriculture and financial services sectors, according to a cabinet statement. The readout gave no details about when the Public Investment Fund would deploy the capital and the agreement is pending “constitutional procedures,” Prime Minister Moustafa Madbouly said.

Riyadh joins the UAE and Qatar providing us with support: Doha has committed to investing USD 5 bn in Egyptian companies and projects, while Abu Dhabi wealth fund ADQ has earmarked USD 2 bn to buy state-owned stakes in public companies. ADQ is reportedly eyeing state-owned stakes held in EGX-listed CIB and Fawry — high-profile, private-sector financial services companies — as well as a number of state-owned, semi-privatized fertilizer companies.

This means our Gulf allies have lined up USD 22 bn in investment and funding for Egypt, most of it having been announced this week after ADQ led the way earlier in the month.

Is Kuwait next in line? BNP Paribas thinks so. In a research note published earlier this week, the bank predicted Saudi would make a deposit and said it thinks there is a “reasonable chance” that we’ll be getting USD 2 bn from Kuwait in the coming weeks. President Abdel Fattah El Sisi has made visits to both the KSA and Kuwait for high-level talks in recent weeks.

Does all of this pave the way for a fresh round of IMF funding? “The transfer helps alleviate short-term funding pressures and should help seal the IMF program as it covers part of the expected funding gap,” EFG Hermes’ head of macro research, Mohamed Abu Basha, told Bloomberg. In a note this week, BNP Paribas estimated Egypt’s total funding gap in FY 2021-2022 is around USD 17.6 bn.

Talks with the Fund are ongoing: We’re in talks with the IMF over another rescue package, though the jury remains out on how much the Fund will lend us and what conditions will be attached to the loan.

BACKGROUND- By our math, the new deposit roughly doubles Saudi funds at the CBE to more than USD 10 bn, after Riyadh in October provided Egypt with USD 3 bn to help us overcome the effects of the pandemic and shore up its foreign reserves and extended the maturity of another USD 2.3 bn of existing deposits.

The move comes as the state grapples with rising food and energy prices, lower tourism revenues and portfolio outflows that continue to pressure our balance of payments on the back of Russia’s war in Ukraine.

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