It was bound to happen sooner or later.
Egypt has returned to Qatar the $2 billion the Gulf state deposited in Egypt’s central bank after negotiations to convert the money into three-year bonds failed.
Though this represents only a quarter of the total funds Qatar has lent or given to Egypt, the decision to return the money symbolises the increasingly strained ties between Cairo and Doha following the ouster of Islamist president Mohammed Morsi in July.
Qatar had been a strong supporter of the Muslim Brotherhood’s Morsi and his departure raised questions of whether Egypt would have to repay any of the total $8 billion in Qatar deposits and loans. Official reports suggest Egypt couldn’t reach a deal with Qatar and decided to repay the deposit rather than convert the $2 billion into bonds.
But in reality, perhaps Qatar was asking for a higher interest rate than Egypt was prepared to pay. Or maybe Qatar simply wanted its money back.
Either way, Egypt has been left in a vulnerable position.
Despite the $12 billion in support from Saudi Arabia, Kuwait and the United Arab Emirates that the government keeps boasting about, the breakdown of this bond deal shows that Egypt cannot rely on the Gulf to solve its problems.
The truth is that multi billion dollar support came because the Brotherhood were eradicated from the political scene, not because Gulf states are particularly bothered about seeing an economic recovery. But here’s the dilemma: the international community have openly stated they want an “inclusive political solution” that does not abandon the Islamists.
So how will Egypt reconcile the needs of international donors (such as the International Monetary Fund, African Development Bank and World Bank who can help implement essential reforms but need the Muslim Brotherhood on board), along with requirements of the Gulf states (who have provided a helpful but unsustainable safety net)?
Egypt has so far taken the easy road by refusing to make any real budget cuts and instead announced an unrealistic stimulus package that it can’t afford.
The Qatari deal breaker signals that the government is weak and its backers are dwindling. Now is the time for Egypt to reconsider how to make the most of the Gulf while the support lasts.