Amid Egypt's persistent economic doldrums, a silver lining has appeared. When rumors were confirmed last week that Egypt was negotiating for the largest package of International Monetary Fund financing ever assembled for a country in the Middle East-North Africa region, its stock markets rallied. On Saturday, an IMF delegation arrived in the country for two weeks of talks, and Cairo hopes that an accord will be quickly reached. The package of loans being discussed would help bring in a total of $21 billion spread across three years. That would fall short of the estimated $10 billion annual infusion that global ratings agency Fitch Ratings estimates Egypt would need to finance its deficit. The IMF money would still be enough, however, to attract more investment and ease the country's worsening dollar crunch.
Foreign funding of any sort is a highly sensitive issue in Egypt, a country with only developing levels of infrastructure and industrialization and a burgeoning population of 91 million, factors that force its dependence on patrons. With its efforts to attract foreign direct investment coming up short since the Arab Spring, Egypt has been compelled to seek out multiple external sources of funding, all of which carry their own costs. There are Gulf Cooperation Council aid and investments on one hand, and international funding from the likes of the IMF and the World Bank on the other. Whether it is the perception that the government is selling the Egyptian soul to wealthy Gulf states, or the fear of austerity measures imposed by the global institutions, popular opinion of external funding has not been positive. Faced with no other recourse, the government is trying to change the way it discusses the funding as it implements the reforms — more painful and slow, but ultimately effective — that the IMF deal will require.
In an effort to change perceptions and separate this new effort from two previous IMF negotiations that were never finalized because of public resistance to painful reforms, the government has gone on a public relations offensive. Egyptian TV over the weekend buzzed with heavy coverage of the benefits to be reaped from the deal, denying that hard and fast conditions have been placed on the IMF package. State news outlets are referring to the IMF suggestions and conditions as "negotiating points" in an effort to downplay the drag some might place on the already depressed economy. The finance minister declared over the weekend that the government already had been considering implementing every measure the IMF was suggesting. It is true that groundwork has been laid on many measures. Still, President Abdel Fattah al-Sisi on Monday offered the most accurate assessment so far of the challenge ahead for the government. Building public trust is critical, al-Sisi said, because "harsh economic measures" are ahead for Egyptians.
Once-plentiful streams of cash infusions from Kuwait, Qatar, the United Arab Emirates and Saudi Arabia have dwindled with the fall of oil prices, forcing Egypt to consider accepting the IMF deal and its attendant economic hardships. Besides its recent scarcity, the Gulf money comes with demands that Egypt cannot always easily fulfill. For example, Saudi Arabia wants Egypt's armed forces to contribute more to its fight in Yemen, a measure unpopular with the Egyptian public. The Gulf funding also comes with some political demands. The United Arab Emirates, for example, would likely rescind all aid if Egypt's government ever again went down an Islamist path. Some Gulf investment deals often seem too good to be true and sometimes do not come to fruition. Only time will tell if ground will ever be broken on the Emirati-funded "New Cairo" or how many jobs a $1.5 billion Saudi investment into the Sinai Peninsula will actually yield. The Gulf countries will not abandon Egypt economically, but they are not seeing as much return on their investment as they would like. In Lebanon, for example, Saudi Arabia rescinded billions of dollars in military aid earlier this year when the political tides did not turn in its favor, a warning to Egypt that Gulf aid comes with strings.
IMF recommendations, on the other hand, are designed with a simple equation in mind: reduce government expenditures and increase revenue so that foreign and domestic investment can take better hold. IMF money carries with it fewer political complications for Egypt than do Gulf funds, but the tradeoff is enacting costly austerity measures. Such measures are a hard sell to Egypt's electorate, but if the public can be brought on board, the country stands to gain more from the investment potential at hand than Gulf money can promise. To win the IMF package, Egypt must introduce an eventual currency devaluation or float, reform its tax structure and cut energy subsidies further. It also must set a clear timeline for implementing reforms, demonstrate a willingness to go to international markets to fund part of its debt and pursue more privatization of state-owned enterprises. Even if done carefully, as the fuel subsidy cuts implemented in 2014 were, Egyptians are anxious about how the funding will provide the jobs and economic stability that they demand.
If successful, this IMF deal stands to help stabilize Egypt and help it get its economy back on track. But previous IMF offers to Egypt have failed because the government, trying to meet its obligations to a growing population dependent on the public sector, was unable to deliver economic reform. Knowing this, al-Sisi's warning on Monday assumes a particular importance. If he can capture public support for the difficult measures at hand — a feat he managed in 2014 that helped him push through energy subsidy cuts — then he might be able to guide Egypt through some of the difficulties ahead. And so long as Egypt's government ensures that, amid the reform efforts, it can feed its citizens and perform its other core roles, it stands a chance at winning the public support it needs.