The United Arab Emirates and Saudi Arabia took less than two hours to welcome the military-backed ouster of Islamists in Egypt. They may now be among the first to offer aid, according to Noah Capital Markets.
Three days after being sworn in as Egypt's interim president to succeed Mohamed Mursi, Adly Mansour dispatched Central Bank Governor Hisham Ramez to the U.A.E. for talks, stoking speculation an aid package from the second-biggest Arab economy would follow. The potential support reflects the unease with the Muslim Brotherhood, which has inspired similar Islamist movements across the region, including the Persian Gulf.
"We can expect that there will be more investment from Saudi Arabia and the U.A.E., who were hesitant because of the Muslim Brotherhood beforehand," Emad Mostaque, a London-based strategist at Noah Capital Markets EMEA Ltd, said in a telephone interview.
Egypt's interim leaders inherit a divided nation and an economy stuck in the worst slowdown in two decades. While the benchmark dollar bonds due 2020 rallied after Mursi's July 3 ouster, the yield surged 45 basis points yesterday to 9.46 percent after more than 50 people, mostly Mursi's supporters, were killed in clashes with the army. That's almost double the average yield on Arab debt, data compiled by Bloomberg and HSBC/Nasdaq Dubai indexes show.
The generals forced Mursi out of office after months of discontent with his leadership came to a head in protests. Hundreds of thousands took to the streets to demand he step down, accusing him of betraying the 2011 revolution that toppled Hosni Mubarak by grabbing power for his Islamist backers and exacerbating Egypt's economic plight.
Mursi blamed the nation's crisis on near-daily protests and dared the opposition to challenge him in elections.
Egypt's foreign reserves declined $1.1 billion in June to $14.9 billion, largely due to the annual re-evaluation of the country's gold holdings, according to central bank data. The reserves have plunged about 60 percent since 2011.
Egypt's credit rating was cut July 5 by Fitch Ratings on concern that the ouster of Mursi will fan political unrest. Fitch's rating gives Egypt the same classification as Greece, Cyprus and Ecuador, according to data compiled by Bloomberg.
"Aid from Saudi Arabia and the U.A.E. will support the balance of payment and will help boost reserves," said Raza Agha, chief Middle East and Africa economist at VTB Capital Plc in London. "Higher reserves should be positive for markets."
Saudi Arabia, the world's largest oil exporter, and the U.A.E. have watched with concern as Islamic political parties were swept into power after popular uprisings in 2011. Lack of trust in Mursi and the Muslim Brotherhood hindered the relationship with the two countries, Khalid al-Dakhil, a politics professor at King Saud University in Riyadh, said.
"The Saudis weren't sure what to make of Mursi," he said in a phone interview. "He would say one thing, then the next day he would say something else. They weren't willing to trust him, not just because of the way he conducted himself, but the period he was in power was also too short."
Saudi Arabia extended almost $4 billion in aid to Egypt's military body that ruled the country until Mursi's election a year ago. The U.A.E. pledged $3 billion, though Egyptian officials said the money was never given.
The U.A.E. has cracked down on its own Islamist groups. It sentenced 69 people to jail for establishing secret cells to seize power, according to a federal court judgment cited by the state-run news agency WAM on July 2.
The verdict "shows the antipathy of the U.A.E. toward the Muslim Brotherhood idea," said Mostaque.
That contrasts with Qatar under former Emir Sheikh Hamad Bin Khalifa Al Thani. The world's largest liquefied natural gas exporter courted the Muslim Brotherhood by pledging aid. In April, Qatar offered $3 billion in financial assistance in addition to the earlier package of $5 billion in deposits and grants to help give politicians time as they negotiate a $4.8 billion International Monetary Fund loan.
Qatar said it was still ready to support Egypt after Mursi's ouster, according to Doha-based Al Jazeera television. The government condemned the violence yesterday and urged self- restraint, the state-run QNA news agency reported.
The U.A.E. and Saudi Arabia were more emphatic in their support of the Egyptian military. Defense Minister Abdelfatah al-Seesi announced the temporary suspension of the constitution at 9:10 p.m. Cairo time. The U.A.E. issued a response by 10:04 p.m. and Riyadh followed about an hour later.
The U.A.E. Foreign Minister Sheikh Abdullah bin Zayed Al Nahyan said the Egyptian army was a "strong shield and protector," according to the official news agency WAM. "We strongly shake hands with the men of all the armed forces, who managed to save Egypt at this critical moment from a dark tunnel," Saudi's King Abdullah said in a statement.
"For the Saudis, the change also shows that the Brotherhood is a failed experiment in Egypt," Theodore Karasik, director of research at the Institute for Near East and Gulf Military Analysis in Dubai, said in a phone interview. "The don't want to see the Muslim Brotherhood succeed."
Egypt has about 169 billion pounds ($24 billion) of local- currency debt repayments this quarter, a record, according to data compiled by Bloomberg. The cost to protect the country's dollar debt against default was little changed yesterday at 775 basis points, the highest in the region.
"Egypt's economy is still in crisis and assistance will be very critical going forward," Shadi Hamid at the Brookings Doha Center, said by phone on July 6. "Saudi Arabia and the U.A.E. definitely want to step in and gain leverage and influence the new government. That's very important for them geopolitically to isolate the Muslim Brotherhood."