Source: European Parliament
While the United Arab Emirates investment alleviated external pressures in the past fiscal year 2023/24, Egypt still faces sizeable financing needs going forward, as identified by the International Monetary Fund, amid a critical economic situation and risks from the geopolitical situation.
The current crises have exacerbated financing needs, with a substantial financing gap already in the new fiscal year 2024/25. To help address this, it is urgent that the EU is in a position to disburse the first part of the Macro-financial assistance (MFA) package to Egypt still this year.
Egypt has seen strong balance of payment pressure, partly due to the Russian war of aggression against Ukraine and the Israel-Hamas conflict that followed the 7 October 2023 Hamas’ terrorist attacks across Israel, which is feeding into the country’s substantial external financing needs. Egypt’s current account deficit expanded significantly in the fourth quarter of 2023 due to a worsening trade deficit and lower remittances.
Moderate growth in tourism, combined with growing services payments led to a 12% quarter-on-quarter drop in the services surplus. Modest remittances (down 11% year on year) did not provide much support.
Revenues from the Suez canal, one of the most important sources of foreign currency, fell by 23% during the fiscal year 2023/2024 compared to the previous fiscal year.
MFA operations are typically not unconditional. On the contrary, the partner country agrees to undertake a number of policy reforms to address the root causes of its problem.
This is also true for the first operation with Egypt, where actions have been agreed to foster macroeconomic stability and resilience; strengthen competitiveness and business environment; and support the green transition.
On the political side, respect and protection of human rights and fundamental freedoms are important in The EU’s relations with Egypt.
In line with the Association Agreement, the Partnership Priorities and the Joint Declaration on the Strategic and Comprehensive partnership[1], the Commission will continue to work together with Egypt to further promote democracy, fundamental freedoms, and human rights, gender equality and equal opportunities.
As stipulated in Article 2 of the Council Decision (EU) 2024/1144 on the provision of the short-term macro-financial assistance, Egypt shall make concrete and credible steps towards respecting effective democratic mechanisms, the rule of law, and guaranteeing respect for human rights. The assessment of progress made in this respect is part of the disbursement process.
The Commission services will work closely with the European External Action Service in monitoring the adoption and implementation of such steps.
- [1] https://neighbourhood-enlargement.ec.europa.eu/news/joint-declaration-strategic-and-comprehensive-partnership-between-arab-republic-egypt-and-european-2024-03-17_en