Tuesday, October 02, 2012

Egypt Approaches America for Aid and Investment Package


CIA Factbook: Egypt

Almost sixteen months after pledging to help Egypt’s faltering economy, the United States (U.S.) is nearing an agreement to forgive $1 billion dollars Egypt owes to the U.S., and to pledge $435 million for investment in Egypt. The Egyptian economy has been in decline since the ouster of long time President Hosni Mubarak in February 2012, and the new President, Mohamed Mursi is working to improve Egypt’s economic outlook by reducing government debt and increasing investment.

If the U.S. forgives $1 billion of the $3 billion Egypt currently owes the U.S., it will support the Egyptian economy in two ways. First, it will reduce the amount of cash that Egypt has to use to pay down government debt, and will allow Egypt to spend more money to stimulate its economy. Second, the Egyptian government is less likely to have to raise taxes on its population to pay down government debt, which leaves more money for taxpayers to spend in the economy. As of 2011, Egypt’s gross domestic product (GDP) per capita  (indicator of standard of living) was 136th in the world, leaving each person with $6,600 to spend per year. The more money that citizens have, the more they are able to spend and stimulate the economy.

The United States has also offered $375 million in financing to American companies that invest in Egypt, and a $60 million investment fund for Egyptians to invest in new businesses. In an effort to entice American companies to utilize the $375 million fund, the U.S. Chamber of Commerce is bringing executives from almost fifty large American companies to Egypt . The United States and Egypt intend the $375 million foreign and $60 million domestic investment funds to help reduce Egypt’s 12.6% unemployment rate, create sources of income for Egyptian citizens, and increase the amount of taxes the government can collect because of the increase in business. Egypt needs an increase in investment to stabilize its economy.

Although the Egyptian stock market showed gains during the week of September 4th, the country still has a long way to go to reach financial stability. The Egyptian stock index (EGX 30) hit a 15-month high on September 4th, showing that the market may be responding to Mursi’s effort, but the EGX 30 still sits 30 percent below its high in 2010.The Egyptian government is mired in debt and lacking investment. With support from foreign governments and internal economic growth, Egypt has a good opportunity to grow a stable economy. America looks to be invested in the recovery process; American Deputy Secretary of State Thomas Nides said that the aid is “not just about assistance,” it is about “growth and business.”


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