Egypt: Egypt to receive $8bn EU aid amidst Gaza and Sudan conflicts

The Government of Egypt is to receive €7.4 billion ($8 billion) in aid from the European Union (EU) to support her economy until 2027 amidst conflicts in Gaza and Sudan.A London-based newspaper the Financial Times claims that the aid comes amid concerns that the situations could deepen North African country’s financial challenges and increase migration pressures in Europe.

The Greek migration minister Dimitris Kairidis, told the news source that Egypt had played a “very critical, key role” in managing irregular migration to the continent of Europe. Early this March, the International Monetary Fund (IMF) approved increasing a support program to Egypt from $3 billion to $8 billion following the liberalization of the exchange rate and the raising of interest rates by the Apex of Egypt.

While Speaking to journalist, Mahmoud Khairy, an economist who has previously worked at the Central Bank of Egypt, emphasized the need for extra financial assistance for the country, despite the IMF’s support.He said: “The widening conflict in Gaza, coupled with Houthi group attacks on ships in the Red Sea, has led to a decrease in Suez Canal revenues by 40 percent – approximately $4 billion – equivalent to half of the IMF’s new loan.”

Furthermore, the European Union’s aid package, includes grants and loans until the end of 2027, which consists of approximately €1 billion in immediate financial relief. However, €4 billion of the package is tied to reforms within the program’s framework signed with the International Monetary Fund (IMF), which is currently under discussion and requires approval from EU member states.

This agreement includes support for the countries energy sector and assistance in dealing with the increasing number of Sudanese refugees in the country, as well as supports to fortify Egypt’s borders with Libya. “We do not have direct flows out of Egypt,” Kairidis told the FT. However, he added: “There are Egyptians crossing through eastern Libya. ”The Finance Minister of Egypt Mohamed Maait, stated in an interview with the media that the country anticipates receiving around $5 billion to $6 billion in funding from the European Union in the nearest future.

The minister further remarked: “On the other hand, the mediation role played by Egyptian officials between Hamas and Israel has helped reaffirm the importance of Egypt’s role in maintaining balance and peace in the region.” The role was a primary reason leading the International Monetary Fund and major countries to extend support to the Egyptian economy, according to the advisor. The President of the European Commission Ursula von der Leyen is expected to travel to Cairo along with the prime ministers of Greece, Italy, and Belgium to finalize and announce the agreement.

The anticipated deal comes after months of negotiations accelerated by the outbreak of the war in Gaza amidst fears of potential refugee movements from the area. According to Maait, Egypt’s overall budget deficit worsened during the first eight months of the current fiscal year to 6.7 percent of the gross domestic product by the end of last February, compared to 5 percent the previous year. Egypt’s fiscal year starts on July 1 and ends on June 30 of the following year, in accordance with the General Budget Law.

Currently, Egypt’s budget deficit in the previous year, 2022 to 2023, was around 6 percent. The country expects the overall deficit to increase to over 7 percent during the current fiscal year. Khairy told the FT that the war in Sudan has had no prominent impact on the Egyptian economy so far.He said: “The first thing that comes to one’s mind is that the prolonged war can lead to a sudden influx of immigration from Sudan to Egypt, which will put more pressure on the Egyptian budget and security.”

However, if that happens, Egypt will have financial and logistical support from relevant international agencies like the UN High Commissioner for Refugee) and the EU, who have an interest in stopping illegal immigrants from crossing the sea, according to Khairy. The economist believes that the negative impact of the war in Sudan on Egypt has three elements.

“Sudan provides Egypt with 10 percent of its needs for livestock and meat. A prolonged war can lead to mild price increases in meat prices,” he said.

He explained that several companies from his country operating in Sudan have taken financing loans from Egyptian banks, which face a default risk if the war continues.

The Minister said: “The most important element is that an unstable government in Sudan will cost Egypt a powerful ally in its water security strategy, especially in facing the Ethiopian lobby to build new dams.”