JEDDAH: The financial support from Saudi Arabia and China promised for 2016 comes at a crucial time for Egypt, which has been facing increasing balance-of-payments pressures, according to Moody’s Investors Service.

The funding will ease strains on Egypt’s external position, Moody’s stated.

The report added that Saudi Arabia (Aa3 stable) agreed last month to lend Egypt (B3 stable) $20 billion to finance the purchase of oil products over the next five years.

This was the latest in a series of financial pledges by Saudi Arabia, China (Aa3 stable) and multilateral development banks (MDBs) since December 2015 to shore up Egypt’s foreign-exchange reserves.

The pledges are credit positive for Egypt because they will support the country’s balance of payments, which lately have been under pressure from a widening merchandise trade deficit, weakness in tourism and lower deposit inflows and grants from the Gulf.

The recent financing agreements point to two key trends.

First, the donor composition is broadening. Gulf countries are facing increasing fiscal pressures because of the prolonged period of low oil prices, so although Saudi Arabia remains committed to supporting Egypt, increased commitments this year from China and several MDBs broaden the available pool of support.

Additionally, financing from traditional donors such as multilateral development banks will help improve transparency regarding funding conditions.

Second, external financial support is shifting to loans and investment commitments from quasi-sovereign sources from predominantly government grants, resulting in an increase in future repayment obligations.

But the risks this entails are somewhat mitigated by Egypt’s low levels of total external debt of 15.4 percent of GDP at the end of the fiscal year that ended June 30 and general governmental external debt of 8.5 percent of GDP as of the same date.

Donor funding for Egypt fell after Gulf countries provided $16.6 billion in grants, loans and petroleum products during fiscal 2014, and additional deposit inflows and foreign direct investment during fiscal 2015.

The financial support promised for 2016 comes at a crucial time for Egypt, which has been facing increasing balance-of-payments pressures.

Merchandise export revenues have been hit by low oil prices, which declined to $21.9 billion in fiscal 2015 from $26.1 billion in fiscal 2014, driven by a 31 percent drop in petroleum exports.

With imports growing — albeit at a slow pace of only 1.3 percent — Egypt’s trade balance posted a deficit of $39.0 billion in fiscal 2015, up from $34.1 billion the year before.

The downward trend continued in the first quarter of fiscal 2016, with petroleum exports down 21 percent from the previous quarter and a wider trade deficit of almost $10.0 billion versus $9.2 billion in the final quarter of fiscal 2015.

With oil prices trending even lower, we expect the trade balance to worsen further.