Saudi Arabia, UAE, Kuwait pumped US$19.5 billion into the Egyptian central bank which enabled French lending institutions to finance Cairo’s Dassault Rafale fighter purchase.
Details of how a cash strapped government of Egyptian President Sisi was able to strike a US$ 6 billion arms package deal with Paris are now emerging in French and Egyptian media reports. A banking source in London contracted by defenseworld.net said this is perhaps the first time an arms deal which resembles a large industrial investment has been worked out.
"Egypt will finance a little over half of the amount, the rest being borrowed from a pool of banks,” a source from within the French defence minister Jean-Yves Le Drian’s delegation which signed the Egyptian deal was quoted as saying by a French newspaper.
According to Les Echos newspaper, the banking pool would consist of a dozen institutions, including Crédit Agricole, Societe Generale and BNP Paribas.
The loan is to be secured by the credit insurer Coface, thus ensuring around 2.5 billion euros in loans which will be guaranteed by the French state, “a new level of insurance in an arms deal,” said Les Echos.
Egypt is to pay the balance 2.5 billion Euros as per delivery schedules of the military hardware. However, the cash strapped Egyptian government would not be able to keep its repayment commitments. Cairo is facing a budget deficit of 17.7% and the growth rate for 2014-2015 is estimated at 3.8% of GDP (as per International Monetary Fund projections) with revenues from tourism, investment and inward remittances plunging to record lows.
This is where Saudi Arabia, UAE, Kuwait come in with their $ 19.5 billion funding to the Egyptian central bank which is expected to narrow the budget deficit to 12.5% of GDP and thus help it keep up to its payment schedule.