UAE's $3bn aid package to Egypt for housing and small firms

The UAE's US$3 billion aid package to Egypt will be funnelled towards small businesses and housing projects as the country looks to the region for assistance ahead of international donors.

The package will take the form of a $1.5bn (Dh5.5bn) fund for small and medium-sized enterprises, $750 million for infrastructure and housing projects and $750m more in "soft" loans for various projects, the state news agency WAM reported on Monday.

It follows a meeting between Sheikh Mansour bin Zayed, Minister of Presidential Affairs and Deputy Prime Minister, and Essam Sharaf, the Egyptian prime minister, in Abu Dhabi this week. It was his first visit to the capital following the uprising that ousted president Hosni Mubarak in February.

The interim government estimates Egypt needs between $10bn and $12bn in international funding to plug a budget gap following the political turmoil that led to a sharp decline in economic output, employment and tourists.

But last month the government said it would not tap a $3bn loan facility it had secured with the IMF, nor would it take up a World Bank offer of assistance, preferring instead to turn to Arab states.

Samy Khalaf, the adviser to Samir Radwan, the Egyptian minister of finance who was travelling to Bahrain as part of a GCC tour yesterday, said Egypt initially sought to agree a $5bn aid package from the UAE.

But this was trimmed by $2bn because of the Egyptian military council's apprehension about taking on international loan support.

"The military council was not willing to increase the external debt," Mr Khalaf said.

Egypt can go at least a year without World Bank or IMF [support] but only with the help of Arab countries," Mr Radwan said on Monday.

Saudi Arabia has pledged $4bn in assistance in the form of long-term loans and grants, while Qatar has pledged to invest $10bn, Egyptian authorities say.

Egypt's budget deficit stands at about 8.6 per cent of GDP, or 134bn Egyptian pounds (Dh82.59bn). Mr Radwan said although 120bn pounds would be financed from the local market, the remaining 14bn pounds would be funded with the help of Arab Gulf countries.

"Egypt's business community welcomed the UAE's move as crucial for jump-starting the stagnant economy, particularly for small and medium-sized businesses, which contribute about 80 per cent of Egypt's GDP.

"It has been expected for some time and as far as the details are concerned, it does not entail a lot of budget support, which is more promising in this environment," said Magda Kandil, an economist and executive director at the Egyptian Centre for Economic Studies.