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Egypt Capital Account and Capital Grants
The current account deficit was financed up to the late 1950s
from previously accumulated reserves. As the reserves diminished,
Egypt turned to external financing, which became the principal
mechanism for covering the deficit. Some of the external financing
sources were nondebt-creating, such as grants and foreign direct
investment, whereas others, primarily loans, led eventually to
heavy indebtedness. These items appeared in the capital account
section of balance of payments transactions.
In the late 1950s and the 1960s, capital grants came primarily
from Eastern Europe; no reliable estimates exist for the period,
because grants were often in kind and the currencies of these
countries were not convertible. After the October 1973 War, Egypt
began to receive large grants, mainly from Arab countries, to help
with reconstruction and to compensate for the drain on the economy
caused by years of military preparedness. In 1974 the grants were
estimated at US$1.4 billion, but they declined in succeeding years
to less than US$100 million in 1979. Between 1973 and 1976, annual
Arab grants averaged roughly US$900 million. Sources of capital
grants altered after the signing of the peace accords with Israel
in 1979, with OECD members, especially the United States, replacing
Arab nations. Some data indicated that between 1982 and 1988
official capital grants averaged US$903 million per annum. Other
estimates suggested larger amounts.
Military grants often supplemented economic grants. From the
United States alone, military aid averaged US$1.28 billion per year
in the period 1984 to 1988
(see Foreign Military Assistance
, ch.
5). The United States probably granted Egypt over the same period
US$953 million per year for civilian purposes, or about threequarters as much as it gave for the military.
Capital grants were primary among nondebt-creating sources of
external finance, but their future was unpredictable and would be
influenced by political factors as well as by Egypt's economic
performance. Whereas donor governments viewed grants as assistance,
Egyptians tended to see them as mutual aid from which donor
governments reaped political, strategic, and other dividends. It
was unlikely, many experts believed, that the United States would
increase its grants, given its own huge budget deficit,
irrespective of political developments.
Data as of December 1990
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