EGYPT'S FOOD AND FINANCIAL PROBLEMS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00826A001400010036-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 9
• Document Creation Date: December 12, 2016
• Document Release Date: January 14, 2002
• Sequence Number: 36
• Publication Date: November 10, 1966
• Content Type: REPORT

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No. 1696/66
Egypt's Food and Financial Problems
1. Egypt is still in a serious financial squeeze.
Its most pressing need is additional wheat. It needs
2.4 million metric tons of wheat per year. To meet
requirements through 30 June 1967, Egypt has already
ordered 1.5 million tons, for which it has contracted
debts of over $105 million, $45 million of which must
be paid in calendar 1967. .Purchases through commer-
cial channels to get the remaining 0.9 million tons
will cost about $73 million, of which some $15-20 mil-
lion must be paid in calendar 1967. (See Table I).
Concurrently, imports of other essential foodstuffs
have continued, and additional debts have been amassed.
2. Between 1966 and 1968, Egypt will remain in
considerable need of outside financial help. Nothing
the Egyptian Government itself Can do will provide
substantial relief. The waste, inefficiency, and
foreign adventurism of the past 14 years were facili-
tated by funds that now are exhausted. If the latest
plans for internal reform are adopted and an austerity
program is implemented during the interim, new income
should become available in 1968-70 that could support
renewed growth.
3. In early October, Egypt had only $148 mil-
lion in gold and foreign exchange reserves. Cairo
was selling gold to meet debt commitments and even
smuggling its own currency abroad to convert into
foreign exchange at free market rates. Servicing
the foreign debt contracted before January 1966 en-
tails obligations of at least $250 million in calendar
ote: This memorandum was produced solely by CIA.
It was prepared by the, Office of Research and
Reports and coordinated by the Office of Cur-
rent Intelligence and the Office of National
Estimates.
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1967. Wheat purchases and other obligations incurred
since January 1966 have raised the total due in 1967
to nearly $350 million--over half of annual export
earnings. The amount. payable in hard currency dur-
ing 1967 probably has been increased from about $180
million to over $250 million.
4. The Nasir regime unilaterally can do little
to resolve the dilemma, which has been created partly
by its own wasteful economic policies and foreign ad-
venturism. Egypt would have to cut imports by at
least $200 million annually to balance current ac-
counts--eliminating, for example, all capital goods
or all industrial inputs, fuels, fertilizers, and
similar items that support industry and agriculture.
Stopping arms deliveries would have little effect be-
cause payments for current purchases would not begin
for several years. Withdrawal from Yemen would save
only about $40 million annually (perhaps $10 million
in foreign exchange) and might cause a short-term in-
crease in outlays for transportation and related ex-
pense. Export earnings from cotton probably will be
the lowest in several seasons, because major importers
such as the UK and India are suffering from balance
of payments difficulties themselves and because the
prices of competing synthetic fibers recently have
been cut. Abandonment of already curtailed domestic
aircraft, missile, and atomic energy programs prob-
ably would save no more than $10 million (perhaps
$2 million in hard currency).
5. Measures to conserve foreign exchange al-
ready have been introduced that have hit both the
military payroll and the individual consumer. A
dual program to increase export earnings from rice
is under way, combining increased retail prices to
the domestic consumer and premium prices to farmers
who exceed their export-destined quotas. New pro-
grams to improve corn yields and to provide free
wheat for urban consumption already have permitted
a reduction in corn imports.
6. The Communist countries are unlikely to
provide suitable assistance in any great quantity.
A complete moratorium on debt obligations to Commu-
nist creditors would save Egypt only about $50 mil-
lion in 1967--paid primarily in cotton that Egypt
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cannot sell for hard currency without glutting exist-
ing markets. Egypt's total trade deficit in 1965 was
attributable to exchanges with the US and Western Eu-
rope, and most of the goods Egypt needs are not read-
ily available elsewhere. The USSR has sufficient
wheat to provide the entire 0.9 million tons Egypt
needs for the remainder of FY 1967 but clearly is not
anxious to cover any substantial portion of that total.
The Soviets themselves are spending hard currency to
import wheat and are using their own large crop to
stockpile wheat against future needs. The Chinese
Communists also might: provide a small amount of wheat
to Egypt for political reasons, although again at a
hard currency cost to themselves. Rumania and Bul-
garia each has offered a small surplus for export to
hard currency purchasers. Barring the threat of ac-
tual famine conditions in Egypt, however, Communist
sources are likely to provide only the minimum that
they consider politically necessary.
7. Attempts to grow all wheat needed domesti-
cally might be feasible but certainly would be econom-
ically disastrous. Egypt would have to increase acre-
age by 150 percent while maintaining yields more than
double the world average. With the resulting loss
of export crops, Egyptian agriculture itself would be
converted from a foreign trade asset earning over $150
million annually to a balance of payments liability
on the order of at least $125 million. (See Table II)
Related dislocations would create chaos throughout
the rest of the economy.
8. The International Monetary Fund (IMF) ap-
parently is Egypt's only source of short-term relief.
An agreement with the Fund could provide up to $86
million in cash over a one-year period and probably
would facilitate negotiation of a multilateral debt
deferral program with Western creditors. The IMF's
price is a stabilization program that entails higher
domestic prices, increased taxes, more severe cuts
in supplies of consumer goods, curtailment of develop-
ment plans with a consequent loss in employment, and
cutbacks in welfare schemes. Negotiations are stymied
by disagreement on the size of the required currency
devaluation. Meanwhile, Egypt must find $5 to $10
million each week simply to stave off creditors and
avoid triggering trade suspensions.
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9. By 1968, two new factors--oil and the Aswan
High Dam--will begin adding to foreign earnings. A
new oil field, slated to produce 150,000 barrels per
day by late 1967, probably will provide a net gain
of about $70 million in the trade balance by 1968.
(See Table III:.) The crude oil potential is enhanced
by other new strikes, by plans to expand output from
existing fields, and by encouraging signs of further
oil strikes in the Western Desert.
10. In addition to direct cash gains, Egypt
could enjoy substantial fringe benefits from its oil
assets. Petroleum refining accounts for 10 percent
of total industrial production, expansion projects
have a high priority, and refineries consistently
operate near capacity, in contrast to other Egyptian
industry. Petrochemical plants could provide badly
needed fertilizer and other products. And, if the
cash returns from oil, concessions are sufficiently
large, the regime eventually may recognize that Egyp-
tian self-interest could be served by opening the
door slightly to some other private capital.
11. The Aswan High Dam, essentially an electric
power project, will provide a temporary respite from
the growing pressure of population on land. Although
cultivated land per capita will be no greater in 1968
than in 1960 (only 0.233 acres), Aswan and other com-
pleted reclamation schemes will limit the decline in
acreage per person during the 1960-72 period to about
10 percent, compared with the 30 percent drop that
would have occurred without addition of new lands.
(see Table IV',)
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TABLE I'
Estimated Cost and Terms of FY 1967 Wheat Imports
Supplier
Amount
(thousand m.t.)
Total Cost
(million $)
France
200
]L5
Greece
100
7
U.S.
910
62
Germany
& Italy*
125
7
Other
200
1.5
Subtotal
1,535
106
Balance
needed**
900
73
TOTAL
2,435
179
Of which, principal 161
interest 18
Repayment Schedule (million $)
Calendar 1966 1967 1968 1969 1970
2
9
4
1
3
3
22
21
19
2-
4
2
2
9
4
6
46
34
19
19
19
18
17
6
65
53
37
17
** A
s
sum
i
ng ordinary commercial purchase
NOTE: Totals may not add due to rounding.
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* As flour
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L A S S I F I E D
TABLE II
(1)
Balance of Payments Impact of Domestic Wheat Production
Agricultural foreign transactions, 1965
Export earnings: Major crops
Cotton yarn and fabric $425 million
Tobacco, hides & other 98
2
Total income 25 million
Expenditures Wheat and flour imports
Other farm product imports $142 million
Imports of fertilizer, etc. 143
Imports of farm equipment (est.) 20
Payment for technical assistance,
debt service, etc. (est.) 25
Total expenditure 360 million
Net earnings $165 million
(2) Cost of diverting acreage to wheat
Acres required : Annual wheat requirement: 4.1 million metric tons
1966 wheat production 1.6 million metric tons
1966 wheat acreage 1.5 million acres
Acreage to grow balance : 2.3 million acres
Acreage devoted to export production, 1965
Total acreage Share of crop Export acres Export earnings
Crop (million) exported (million) (million $)
Cotton 2.0 75% 1.5 420
Rice 1.1 35 0.4 46
Onions 0.2 35 0.1 16
Beans 0.4 30 0.1 5
Oth
er
vegetables 1.8
(3)
TOTALS 5.5
Net loss in agricultural earnings
Current export income
Exports sacrificed
Remaining export income
Current foreign costs
Import and interest saving;
Remaining foreign costs
$525
490
$ 35
$360
190
$I7 million
Net deficit $135 million
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Impact of New Oil Field on Trade Balance
Value as crude:
At export prices ($1.35/barrel), projected total 1968 output
(150,000 b.p.d., or 7.5 million m.t./year)
The 60% share retained by Egypt = 4.5 mil. m.t.
At prices Egypt currently pays to import crude ($14.80/m.t.),
the share retained by Egypt :_
Millions
$72.9
$43.7
$66.6
Value as substitute for 1965 product imports $ 7.5
Total value as import saving
$74.1
Other Factors
Related annual debt service = minus $5.0 million
Receipts from added export of refined products =plus $1-2 million
per ton over the crude import price above.
1968 Balance: Net improvement in trade balance of $70 million
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U N C L A S S I F I E D
TABLE IV
Changes in Land per Capita
Cultivated Area* Population
(million acres) (millions) Cultivated Acres/Capita
1945
(approx.)
5.73
18.0
0.318
1952
5.67
21.5
0.264
1960
6.02
25.8
0.233
1965
6.23
29.8
0.209
1968
(proj.)
7.58
32.5
0.233
1972
(prof,.)
7.58
36.6
0.207
Includes future reclamation only if related to Aswan High Dam.
U N C L A S S I F I E D
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