GULF TIMES
Zawya Dow Jones /Dubai
A logo sits above the headquarters of the Banque de Tunisie (right) in Tunis, Tunisia (file). Severe economic disruption in countries such as Egypt, Tunisia, Morocco, Yemen and Jordan has only been averted by the willingness of the Gulf countries or the IMF to provide financial assistance
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 $20bn 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.
Hirsch says the democratic gains in Egypt and Tunisia could be threatened if official aid fails to materialise soon, with both countries vulnerable to a collapse in the currency and inflation which would trigger widespread social unrest.
As well as the $20bn pledge from the Group of Eight industrialised countries, the Arab countries are slated to receive another $20bn from Gulf States and from various multilateral institutions. Less than $1bn of the G8 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 Co-operation, echoing the complaints of many of the Arab states.
Tunisia, which was set to receive $5bn from the G8 countries, says the only G8 commitment so far is the US guarantees for a $350mn international bond issue it launched in June 2011 with the assistance of the World Bank. And the US has started discussion on forgiving $1bn of past loans to Egypt as a show of support for the new government of Egyptian President Mohamed Mursi.
“Clearly, much of the Western world is in austerity mode, so there is a risk that promised aid from that area does not materialise any time soon. If that external financing doesn’t materialise (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 $10bn in loans and deposits from Saudi Arabia, Qatar and other Gulf Cooperation Council nations. But even those amounts are a small proportion of the $300bn 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 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 $52bn this year, of which Egypt will require $25bn and Tunisia $3.6bn.
“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 mobilised,” 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 Martins at HSBC.
The US, 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 US 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 $30mn loan to support trade in Jordan, a €20mn ($26mn) private equity investment in Morocco and Tunisia, and another €20mn 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.
