No More Blank Checks: Saudi Arabia Clamps Down on Regional Aid

For much of the past decade, Saudi Arabia has sent billions of dollars in aid to Egypt, cementing a poorer ally in a region deemed too strategically important to ignore.

But recently, there has been a remarkable change. Even as Egypt slid deeper and deeper into economic crisis, Saudi officials sent a stark message: No more blank checks.

With a wealth of oil income, the 37-year-old leader of the Gulf kingdom, Crown Prince Mohammed bin Salman, has increasingly set conditions for that aid – emphasizing economic overhauls such as cut subsidies and privatize state-owned companies.

“People used to say ‘Egypt is too big to fail,’” said Karen Young, a senior research scholar at Columbia University’s Center for Global Energy Policy. “Now the attitude is ‘Egypt must take responsibility for its own mistakes.’”

Saudi Arabia, the world’s biggest crude exporter, ended 2022 with a budget surplus of $28 billion after Russia’s invasion of Ukraine pushed up oil prices, flooding producers with profits. Despite that good fortune, Saudi officials say they are tired of endless aid to poorer countries like Egypt, Pakistan and Lebanon just to watch it. vaporize.

The kingdom is still sending money abroad – possibly more than ever. But much of that is now heading towards international investments for profit and influence as well as launching new domestic industries, such as tram. The government of Saudi Arabia has also assumed a similar role to the International Monetary Fund, which gives it even greater influence than before over regional politics, with larger countries such as Pakistan really takes it seriously.

“We used to finance directly and send money with no strings attached,” Saudi Arabia’s finance minister, Mohammed al-Jadaan, said in January in Davos, Switzerland, at a meeting. of the world’s political and economic elites. “And we are changing that. We’re working with multilateral organizations to really say, ‘We need to see reforms.’”

Mr al-Jadaan’s statement sparked a war of words between Saudi and Egyptian experts, fueled by Egypt’s anxiety about its deepening dependence on the nations. wealthier Gulf regions such as Saudi Arabia and the United Arab Emirates.

Saudi and Egyptian officials have worked hard to get things right, but the new power dynamic is not going away: Since his father ascended the throne in 2015, Prince Mohammed has changed the way Saudi Arabia uses its financial strength, pursuing higher return on investment and mining revenue oil for leverage in the Middle East and beyond.

The basis for this is broader than the crown prince’s attempt to rebuild the kingdom’s own economy after the sharp drop in oil prices in 2014, which left the country running a budget deficit for eight years. The focus is on spending that helps the conservative Muslim nation develop non-oil sectors and become a hub for a variety of businesses and cultures.

He is building a model that smaller Gulf states like the United Arab Emirates and Qatar followed years ago. to increase their international influence.

Timothy E. Kaldas, an expert on Egypt’s political economy at the Washington-based Tahrir Institute for Middle East Policy, said: “What the Gulf has is almost nowhere else in the world. is quite a lot of excess capital. “That comes with power.”

In March, Saudi officials agreed to provide $5 billion for the use of Turkey’s central bank, supporting the Turkish economy two months before Independence Day. vote. That brought Türkiye closer to Saudi Arabia’s sphere of influence after stressful yearsimmered after the 2018 murder of Saudi dissident and Washington Post journalist Jamal Khashoggi by Saudi agents in Istanbul.

As for other countries in the Middle East, Saudi aid has dwindled as the kingdom’s priorities change.

In 2016, Saudi officials suspended billions of dollars in military and security-related aid to Lebanon as they became frustrated with the growing influence of their regional rival Iran. this country.

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A few years later, Lebanon, long dependent on Gulf help, spiral into a financial crisis so desperate that people turned to bank robbery to access their own savings. government of saudi arabia do not enter to prevent it, and analysts say it is an early sign of the kingdom’s changing approach to regional funding.

Prince Mohammed’s emphasis was “Saudi first” when he stoked nationalism. Last year, the Saudi sovereign fund announced that it will invest $24 billion in Egypt, Iraq, Jordan, Bahrain, Oman and Sudan. But channeling that financial support through investments allows Saudi officials to prioritize their own profits.

When Egypt devalued its currency three times in the past year, Saudi entities sought to buy assets at a discount.

“The state is effectively selling its assets,” Mr. Kaldas said. “They may want to say they are bailing out Egypt, but from the Egyptians’ point of view, some of them see it as taking advantage of the bad situation.”

These changes reflect long-term changes in relations between Arab states over the past half-century, with the focus shifting away from places like Egypt, once a cultural and political heavyweight. value of the region – to the oil and gas-rich Gulf.

That doesn’t sit well with many Egyptians.

And this year’s aid tensions have rekindled those disappointments. In February, after a Saudi novelist wrote on Twitter that Egypt was “tethered to aid from one place or another,” the editor of the Egyptian newspaper Abdelrazek Tawfik called the Gulf countries are “barefoot and naked” rich newcomers with no authority to dictate. to Egypt.

But the opinion piece quickly disappeared from the internet, and Egyptian President Abdel Fattah el-Sisi downplayed the conflict, speaking enthusiastically of “the support our brothers have given us. “.

For el-Sisi, an authoritarian leader who came to power in a military coup in 2013, Gulf support is crucial.

Mr. el-Sisi overthrew the democratically elected Muslim president, Mohamed Morsi, who is seen as a security threat by the monarchies of Saudi Arabia and the United Arab Emirates. Although Saudi Arabia’s ruling elites have built their country on a narrative tied to religion, many of them fear Islamic politics as a potential source of opposition back home. home, where political parties are banned and Mr. Morsi’s Muslim Brotherhood is under threat. carry label a terrorist group.

Between 2013 and 2020, Saudi Arabia sent $46 billion to Egypt in the form of central bank deposits, direct investment, and oil and gas. data compiled by Miss Young. And that support, while it has diminished, has not completely disappeared.

When Egypt’s economic crisis worsened last year, a group of Gulf states intervened. They deposit billions of dollars in Egypt’s central bank, protecting its dwindling foreign currency reserves and helping the country pay for imports.

Saudi Arabia also played a key role in the International Monetary Fund’s latest bailout deal with Egypt, which required the country to raise some funds to bail itself out by selling 2 billions of dollars in government assets to wealthier Gulf countries. These assets are likely to include large banks and state-owned industrial enterprises – stoking anxiety in Egypt about its sovereignty and standing.

Mr Kaldas said that the Egyptian government “has placed the state in an extremely vulnerable position” which is raising concerns for the country’s “geopolitical independence” in the long term.

Saudi and Egyptian officials are still talking about potential investments — and policy changes Saudi and IMF officials want in return, including cutting subsidies and reducing the military’s role in the economy. economic – according to two people familiar with the discussion. on condition of anonymity because they are not public.

But as months passed without significant progress, Saudis as well as Egyptians questioned Egypt’s ability to rationalize its economy.

“Sometimes you need to know where the money is going,” said Hesham Alghannam, a Saudi political scientist. “Will it benefit the people?”

Asked during a conference in Riyadh, the capital of Saudi Arabia, last month if Saudi Arabia was concerned about Egypt, al-Jadaan, the kingdom’s finance minister, was asked has a warmer tone than in Davos.

“They might have some difficulties,” he said. “But I think they have what it takes to be a great nation.”

In a statement shortly after, Egypt’s finance minister said his country “would very much like to support everything necessary to increase Saudi investment”.

Ahmed Al Omran Reporting contributions from Jeddah, Saudi Arabia.


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