Aid Cut-Off To Have Minimal Economic Impact

BMI View: We do not expect the US government's decision to reduce military aid to Egypt to have a significant economic impact. Whilst the political impact will be more noticeable , we think that regional support, both politically and economically , with mitigate any negative impact from the move. Indeed, we expect the aid to be returned to previous levels once elections are organised in the coming months .

The US government's decision to suspend a large part of the US $1.3bn in aid to Egypt will have a minimal impact on the Arab state . According to the state department, t he delivery of large-scale military systems as well as cash assistance to the Egypti an government would be withheld . The total amount will likely equate to hundreds of millions of dollars with the delivery of Apache helicopters, as well as Harpoon missiles and tank parts delayed. In addition, a US $260m cash transfer and a US $300m loan guarantee will be halted. The timing of the decision is surprising given that much of the worst of the violence, as well as the overthrow of the democratically elected President Mohammed Morsi occurred several months ago.

In economic terms we do not think the impact of the suspension will significant ly impact the country's finances. Whilst the size of the assistance halted is not insubstantial in itself, Egypt has received US$12bn in aid from the Gulf States since July and given recent rhetoric between the Gulf countries and Egypt, we believe more assistance could be in the offing. Indeed, Saudi Arabia pledged to fill any shortfall in aid removed by other countries in a statement which was clearly in reference to the United States.

Political Risks To Stay Elevated
MENA - Political Risk Ratings

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This article is tagged to:
Sector: Country Risk
Geography: Egypt

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