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Saudi aid to include $1 billion Egypt central bank deposit

Deposit would be based on arrangements agreed upon by the Saudi and Egyptian central banks, says Saudi ambassador

Reuters, Sunday 22 May 2011
Views: 2085
Views: 2085

A US$4 billion aid package Saudi Arabia has pledged to Egypt will include a $1 billion deposit at the Central Bank of Egypt and $500 million in bond purchases, al-Ahram newspaper quoted a Saudi official on Sunday as saying.

The package, which Egypt announced on Sunday, is designed to to support the country's cash-strapped economy in the wake of the upheaval that ousted President Hosni Mubarak on 11 February.

The turmoil has caused tourism and investor revenue to dry up at a time when high popular expectations have increased the pressure on the budget.

Egypt has been asking donors and the International Monetary Fund to help bridge an estimated at $10-12 billion funding gap for the financial year that begins on 1 July, economists say.

The $1 billion central bank deposit would be based on arrangements agreed upon by the Saudi and Egyptian central banks, Al-Ahram quoted Saudi ambassador to Cairo Ahmed bin Abdulaziz Kattan as saying.

Since the beginning of the year, Egypt's central bank has drawn down its net international reserves by $6 billion to finance a balance of payments gap exasperated by the political turmoil. Reserves now stand at $28 billion, equal to an import cover of about 4.5 months, according to economists. Kattan said the package would also include $500 million for general budget support amd a $500 million soft loan.

Yet another part of the package would be contain $500 million in soft loans for development programmes from the Saudi Fund for Development and a grant of $200 million to be placed with the fund or in a current account to finance projects such as small and medium-sized enterprises.

The newspaper did not spell out the what the preferential terms of the soft loans would be.

Another $750 million would be extended as a line of credit to finance Saudi exports to Egypt, Al-Ahram cited Kattan as saying.

Egyptian finance minister Samir Radwan said on Thursday he expected gross domestic product would grow 3-4 per cent in fiscal year 2011/12.

U.S. President Barack Obama said in a speech on Thursday he would relieve Egypt of up to $1 billion in debt and guarantee another $1bn in borrowing to finance infrastructure and job creation.

The European Bank for Reconstruction and Development said on Saturday it would explore how to direct funds to Egypt and other Arab states in the same way it supported communist states after the fall of the iron curtain more than two decades ago.

Officials have said lending to Egypt could start at around 100-200 million euros ($145-$290 million). An EBRD spokesman said a team would go there in the next few weeks to identify infrastructure, agriculture and other potential projects.

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