Global Policy Forum

Egypt Seeking Debt Relief from European Union

The newly formed Egyptian government may place a formal request for debt relief from the European Union. The Egyptian economy remains paralyzed by the protests that toppled the regime of Hosni Mubarak after nearly three decades of rule. Egypt owes EU member states $9 billion, which is nearly a third of total foreign debt. The EU has not confirmed whether the demand for debt relief will be met, though European ministers have discussed aid options in the context of Egypt and other North African countries mired in economic crisis.

Associated Press
February 22, 2011

Egypt has asked Britain for its support in seeking debt forgiveness from Europe, the Finance Ministry said Tuesday, in the latest push to boost an economy bruised by weeks of protests that toppled President Hosni Mubarak.

Finance Minister Samir Radwan also said in a statement that the current government's immediate priorities center on helping Egyptians directly affected by the 18 days of protests, as well as enacting quick measures that could boost the economy.

The protests that led to Mubarak's ouster after nearly 30 years in power ravaged Egypt's economy, forcing banks to close, businesses to shut down and banks and the stock market to halt operations. The bourse on Tuesday further postponed the resumption of trading until next week, not specifying a date.

They have also sparked massive labor protests and strikes that turned violent Tuesday, with the deputy head of one public sector company being beaten to death by irate workers.

Radwan, in a meeting Monday with British Trade and Investment Minister Lord Stephen Green, said he would like London's help in either securing debt forgiveness from Europe, or at least forgiveness of the interest on the loans.

Egypt owes the EU member states about $9 billion, according to EU officials in Egypt. The country's total foreign debt stood at about $34.7 billion as of the end of September 2011, according to central bank figures. Government debt accounted for roughly $29.8 billion, or slightly more than 11 percent of GDP.

EU officials in Cairo said the Egyptian government had yet to submit a formal request for debt forgiveness to EU member states.

But European foreign ministers have already been discussing a comprehensive economic and trade package to help countries in North Africa that have been affected by the turmoil in Egypt, Tunisia and, most recently, Libya. EU foreign policy chief Catherine Ashton met with Foreign Minister Ahmed Aboul Gheit on Tuesday to discuss Egypt's economic and political situation following Mubarak's ouster.

Ashton said the EU was studying ways to help Egypt transition to democracy, as well as steps the bloc could take to rebuild the economy. She said Brussels could provide expertise and resources, but that it was up to Egyptians to determine their own future.

The calls came as the head of the European Investment Bank called on the EU to allow it offer more funds to support the transition to democracy in Tunisia, Egypt and other countries in the region. Philippe Maystadt said the EIB had used up the euro8.7 billion ($11.9 billion) it was allocated to lend to the region between 2008 and 2013 faster than expected.

The unrest in Egypt shattered earlier projections of the country's economy growing by as much as 6 percent in fiscal year 2010-11. The government has cut its forecast for GDP growth by almost one half, while analysts and economists have offered estimates ranging from about 1.7 percent to slightly more than 3 percent for the year.

Cairo-based Mideast investment bank EFG-Hermes said it was projecting a contraction of 2.5 percent for calendar year 2011, in a reflection that the economic spasms in the country will likely extend well through the end of the year.

The government has estimated that the unrest cost the nation about $1.7 billion in the span of about two weeks, with more than half that figure stemming from tourism losses.

Officials have said more than 210,000 tourists fled the country in the last week of January and the first few days of February. National carrier EgyptAir is offering 25 of its latest aircraft for lease, complete with crew, and the company said it has lost about 80 percent of its projected revenue so far this year amid steep drops in passengers.

Further sparking concerns has been a wave of labor protests that capitalized on the momentum generated by the broader popular unrest in Egypt. Workers in virtually every part of the public sector have been demanding better pay and conditions, as well as a shift from the temporary contracts they said deprived them of basic benefits such as health care and pensions.

The strikes and unrest, which have also spread to the Suez Canal Authority, also forced the banks for a week on two separate occasions.

In a rare incident of the strikes turning violent, workers at the Kafr el-Dawar textile company, about 50 kilometers (30 miles) north of Cairo, stormed the office of Mohammed Rifaat El-Geneidi, the company's deputy head, and beat him to death, police officials said. They spoke on condition of anonymity because they were not authorized to brief the media.


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