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— G8 Nations Pledged $20 Billion At Deauville Meeting
— Inflation, Currency Depreciation Would Trigger Unrest
— IMF, Gulf Countries Provide Some Assistance
— EBRD Approves Some Funding For Arab States
DUBAI (Zawya Dow Jones)– The economic prospects of many of the Arab countries going through political upheaval are being put at risk by the failure of Western nations to deliver on aid promises, according to economists and Arab officials.
Preoccupied by economic troubles at home, the rich nations have agreed only a small fraction of the $20 billion they pledged to the Arab Spring countries at a summit meeting in the French seaside resort of Deauville in May 2011. Severe economic disruption in countries such as Egypt, Tunisia, Morocco, Yemen and Jordan has only been averted by the willingness of the oil rich Gulf countries or the International Monetary Fund to provide financial assistance.
“The risk here is that if sufficient foreign aid, from the Deauville Partnership or elsewhere, fails to materialise, then some of these countries are at risk of a full-blown balance of payments crisis,” says Said Hirsch, a Middle East specialist at Capital Economics in London.
Mr. Hirsch says the democratic gains in Egypt and Tunisia could be threatened if official aid fails to materialize soon, with both countries vulnerable to a collapse in the currency and inflation which would trigger widespread social unrest.
As well as the $20 billion pledge from the Group of Eight industrialized countries, the Arab countries are slated to receive another $20 billion from the oil-rich Gulf states and from various multilateral institutions. Less than $1 billion of the G-8 money has actually been agreed.
“So far, there has been no financial or technical assistance extended within the context of the (Deauville) Partnership,” says Jaafar Hassan, Jordan’s Minister of Planning and International Cooperation, echoing the complaints of many of the Arab states.
Tunisia, which was set to receive $5 billion from the G-8 countries, says the only G-8 commitment so far is the U.S. guarantees for a $350 million international bond issue it launched in June 2011 with the assistance of the World Bank. And the U.S. has started discussion on forgiving $1 billion of past loans to Egypt as a show of support for the new government of Egyptian President Mohammed Morsi.
“Clearly, much of the Western world is in austerity mode, so there is a risk that promised aid from that area does not materialize any time soon. If that external financing doesn’t materialize (the impact) will be negative,” on the economies of the Arab Spring countries, says Liz Martins, a senior economist for the Middle East & North Africa at HSBC in Dubai.
Jordan, Tunisia, Yemen and Morocco have received loans from the International Monetary Fund this year, and Egypt and other Arab states have benefited from close to $10 billion in loans and deposits from Saudi Arabia, Qatar and other oil- rich Gulf Cooperation Council nations. But even those amounts are a small proportion of the $300 billion which the International Monetary Fund estimates will be needed by the weaker Arab economies over the next two years.
“Drip feeding isn’t a solution. It may help on the short term to prevent a financial collapse of such economies, but on the longer term, the picture is dark if they don’t receive the proper financing,” said Mr. Hirsh at Capital Economics.
The need for support is greater because the ability of the Arab states to raise private sector loans and attract funding from foreign companies has been affected by the political uncertainties brought by the Arab Spring. The IMF estimates that the fiscal financing needs of the Arab oil importers will total $52 billion this year, of which Egypt will require $25 billion and Tunisia$3.6 billion.
“The Arab countries in transition are faced with substantial external financing needs that could rise, especially if international prices for food and fuel remain at current levels or increase, adding to the import bill,” says Masood Ahmed, director of the IMF’s Middle East and Central Asia department. “It will be important that sufficient support from the international community be mobilized,” he adds.
And the governments’ borrowing needs will make it harder and more expensive for private sector companies to raise finance, the International Monetary Fund has warned.
“The combination of GCC concessional funding, IMF deals and local bank purchases of t-bills will keep these countries afloat, but the fiscal burden will weigh heavily on private sector growth,” said Ms. Martins at HSBC.
The U.S., which currently presides the G8, “continues to work on drafting plans and setting action plans” on how to help Arab Spring countries, according to a U.S. Department of State official. Other assistance will come from the European Bank for Reconstruction and Development, which has amended its statutes to allow it to lend to the Arab world for the first time.
Earlier this week, the EBRD approved a $30 million loan to support trade in Jordan, a EUR20 million ($26 million) private equity investment in Morocco and Tunisia, and another EUR20 million in loans for small and midsize enterprises in Morocco.
However, the EBRD has still to receive approval from all its shareholders for larger lending to the Arab world. So far, only 80% of EBRD shareholders have approved the lending.
Libya, which now says it doesn’t need financial assistance because of the relatively quick restoration of its oil production, nevertheless remains critical of the failure of the G8 nations to provide financial assistance. “They simply make pledges and top them with more pledges, but deliver on nothing. It is just propaganda,” a Libyan diplomat who wished to remain unnamed said last month.
– Write to Leila Hatoum at leila.hatoum@dowjones.com
William Horobin and Paul Hannon contributed to this article.
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(END) Dow Jones Newswires 09-20-120415ET Copyright (c) 2012 Dow Jones & Company, Inc.
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