Qatar extended to Egypt a $2.5bn financial lifeline on Tuesday, in an effort to shore up the weakening Egyptian currency and avert an economic crisis.
The gas-rich Gulf state’s rush to the rescue of the Islamist president Mohamed Morsi follows currency jitters in Cairo that have sent the pound to record lows and sparked fears of unrest.
The Qatari move was another attempt by the Gulf state to use its cash to cement ties with new Islamist leaderships.
Sheik Hamad Bin Jassem Al Thani, the Qatari prime minister, said his country had given Egypt a $500m grant and another $2bn loan to help control the currency and support the dwindling foreign reserves, a day after Cairo resumed talks for a crucial $4.5bn loan from the International Monetary Fund.
“That is a decent amount of money. It will stabilise the foreign exchange market a little bit,’’ said Mohamed Abu Basha, Egypt economist at Efg-Hermes.
“It will allow the government a breathing space where they do not have to worry a lot about the currency during the IMF negotiations.’’
Political turmoil triggered by a crisis over the country’s new constitution had led to a rush to convert Egyptian pounds to dollars in the past few weeks, sending the pound to a record low against the US dollar.
The pound has weakened 4.6 per cent on the interbank market since December 30 and has lost more than a 10th of its value since the fall of former President Hosni Mubarak.
Analysts say that the Qatari cash will mean Mr Morsi can for now avoid taking drastic economic measures ahead of important parliamentary elections in the coming months.
Qatar as been a main champion of Islamists in the arab world over the past two years as the ambitious state seeks to extend its political influence in the middle east. Doha supported the opposition in Libya, Tunisia, Egypt and Yemen and remains a key backer of the revolt against Syria’s President Bashar al-Assad.
“There was an initial package of $2.5bn,” Sheikh Hamad bin Jassim al-Thani told reporters after meeting Mr Morsi.
He added that the Egyptians had some of the money already. “Some of the final details with the deposits are being worked on with the technical people, but the amount is there,” he said.
Tuesday’s financial package comes on top of an already-promised $2.5bn package from Qatar.
The government said it expected the IMF technical committee to visit Cairo in two to three weeks to resume talks on the loan aimed at plugging the balance of payment and budget deficit.
Mr Abu Basha said the government still needed political stability to attract investors and could not avoid tough economic decisions. “There has to be action taken on the fiscal side to narrow the deficit,” he said.