Egypt's Central Bank Returns $2 Billion Qatari Deposit

Egypt's rejection of a $2 billion Qatari bond-investment deposit shows the marked deterioration of relations between Cairo and Doha.

al-monitor People and vehicles are seen caught in a traffic jam in front of the Central Bank of Egypt's headquarters in downtown Cairo, March 17, 2013. Photo by REUTERS/Amr Abdallah Dalsh.

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egyptian economy

Sep 24, 2013

Tensions between Cairo and Doha seem to have reached advanced levels. Indeed, the Central Bank of Egypt’s decision to return the $2 billion Qatari deposit a day after negotiations to convert the money into bonds failed, and the Egyptian Civil Aviation Ministry’s turning down of a Qatari request to increase the number of flights are a clear indicator. The Egyptian government also stressed that it did not need a loan from the International Monetary Fund (IMF).

The governor of Egypt's Central Bank, Hisham Ramez, announced that Egypt returned to Qatar a $2 billion deposit following stalled negotiations on converting it into bonds. The amount is part of a short-term, $3 billion deposit that the Qatari government had deposited with the Central Bank of Egypt.

Ramez explained that the Qatari government asked the Central Bank of Egypt to postpone the conversion of the $2 billion into bonds during the current week, reneging on its promise made in the past few days. He added that Qatar decided to introduce some amendments to the agreement concluded in this regard, a move not in line with the Egyptian government’s financial policies.

The Central Bank had already converted the first $1 billion of the Qatari deposit into three-year bonds.

Moreover, Qatar announced in April 2013, two months prior to the ouster of President Mohammed Morsi, that it would purchase Egyptian bonds worth $3 billion as part of an aid package that would help Egypt. It also promised to spend $18 billion in investments in Egypt by 2018. However, ties between Cairo and Doha rapidly deteriorated in the wake of the June 30 Revolution that ended the Muslim Brotherhood’s regime. Reports indicate that Qatar had offered Egypt financial aid amounting to $7.5 billion during Morsi’s rule.

The first comment issued by Qatar on the Egyptian step was through Qatar News Agency (QNA), quoting an official source in the Qatari Ministry of Finance as saying that “Doha respects the decision of the Egyptian government.”

The source explained, “During the past two weeks, several meetings were held in Doha between the two parties to convert the deposit into bonds. The Qatari side offered to convert the deposit into four equal bonds of $500 million each, provided that the first installment be paid immediately and the rest within three months.”

“Initially, the Egyptian side accepted this offer, but then declined for unknown and undeclared reasons, insisting on converting this deposit into bonds all at once,” added the source. The Qatari side suggested that the deposit be paid in two installments: a $1 billion first installment, paid immediately, with the second installment being paid within a month. The Egyptian team, however, insisted that the entire deposit be transferred at once. Egypt asked that the deposit be withdrawn should the Qatari side fail to comply.

Salwa al-Antari, a professor of economics at the American University in Cairo, said in an interview with As-Safir that this decision did not come as a surprise. She pointed out that the Egyptian Central Bank had previously announced that it would take such a step.

“Qatar wanted to use the loan to put pressure on Egypt,” Antari said. “All attempts to put economic pressure on Egypt — be it from a state or an international organization — for political purposes, are doomed to failure, especially considering that Egypt has enough economic components and structure to overcome these crises faster than many expect,” she added.

“Egypt has large investment alternatives led by the economic power of Egyptians abroad, whose support to the Egyptian economy can be linked to specific investments. Add to this the possibility of offering financial instruments in foreign currencies to fund development projects, such as the promotion of the local wheat cultivation, thus increasing employment opportunities, stimulating the economy and increasing foreign currency supply.”

Political tension between Cairo and Doha has seemingly moved to different economic sectors. In a telephone call with Al-Arabiya TV channel, Egyptian Petroleum Ministry spokesman Hamdi Abdel Aziz said that Egypt was studying all the options related to gas imports to cover domestic demand. He pointed out that the talks about 13 shipments with Qatar were currently on hold.

Western media outlets reported a few days ago from a source in Qatar’s energy sector that the Egyptian army would ease the pressure on the Muslim Brotherhood so that the two countries could resume their talks on further fuel supply.

In the context of this escalation, the Egyptian Ministry of Civil Aviation refused, on Sept. 19, a request by the Qatari authorities to increase the number of flights between the two countries to accommodate the growing travel activity. This is the first Qatari request rejected by the authorities since Morsi’s ouster.

In this regard, the Middle East Monitor said that the Higher Education Institute in Qatar had prepared a plan for the transfer of Qatari students studying in Egyptian universities to Moroccan and Jordanian universities in the event that political instability in Egypt last.

Moreover, Egypt’s Deputy Prime Minister and International Cooperation Minister Ziad Bahaa El-Din said that Egypt was not currently in urgent need of an IMF loan, stressing that the government had the capacity to implement the national economic program that had been announced a few days ago with the currently available resources. Bahaa El-Din stressed that the government was capable of securing the country’s main needs in fuel and other basic goods

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