Middle East

Egypt finance: Qatar steps in to ease Cairo cash crisis

Qatari Prime Minister Hamad bin Jassim al-Thani (R) speaks during a joint press conference with Egyptian Prime Minister Hisham Qandil after a meeting with Egyptian President Mohamed Morsi in Cairo, 8 January 2013
Image caption The Qatari PM announced the funding deal after meetings in Cairo

Qatar has lent Cairo a further £1.25bn and donated an extra £300m in an effort to control a currency crisis prompted by Egypt's political turmoil.

Qatari Prime Minister Sheikh Hamad bin Jassim al-Thani announced the doubling of funds after meeting Egypt's President Mohamed Morsi in Cairo.

Egypt faces the threat of a currency crisis after the Egyptian pound hit its lowest level in eight years.

Authorities warn the country's central reserves are at a "critical level".

Needed to defend the local currency against devaluation, the reserves have dropped from $36bn (£22.3bn) before the uprising to just $15bn, the Central Bank of Egypt disclosed late last month.

Meanwhile, the American credit rating agency Standard & Poor's (S&P) downgraded Egypt's long-term credit rating to "B-" - the same level as that of Greece.

President Morsi has promised to make tackling the country's failing economy a key priority.

Nearly two years after the ousting of his predecessor, Hosni Mubarak, continuing political unrest has exacerbated Egypt's financial problems, which helped fuel the uprising.

Bankruptcy pledge

Qatar was already providing Egypt with financial assistance to the tune of $2.5bn.

"There was an initial package of $2.5bn, of which $0.5bn was a grant and $2bn a deposit," said Mr Thani after his meeting with Mr Morsi.

"We discussed transferring one of the deposits into an additional grant so that the grants became $1bn and the deposits doubled to around $4bn," he said.

Egypt is experiencing a marked slowdown in economic growth as well as rising poverty and unemployment.

A number of Egyptian economists have described the situation as a combination of two phenomena, stagnation and inflation, commonly known as "stagflation".

While President Morsi has assured the public that "Egypt will never go bankrupt", many Egyptians remain sceptical and are rushing to exchange bureaus to buy hard currency at any price.

That currency devaluation means the value of the government debts increases, causing it to eat more into its remaining reserves to pay them off.

Controversial presidential decrees have impacted on the country's institutions owing to the polarisation that ensued between the ruling Muslim Brotherhood, from which Mr Morsi hails, and the liberal opposition.

Frequent protests, which escalated in November and December, scared tourists and investors away and delayed negotiations with the IMF over a $4.8bn lifeline. This has created a sharp decline in the country's reserves.

Consequently, the ability of the government to provide strong and sustainable public finances has been weakened.