Egypt: Background and U.S. Relations
Jeremy M. Sharp
Specialist in Middle Eastern Affairs
June 5, 2014
Congressional Research Service
7-5700
www.crs.gov
RL33003


Egypt: Background and U.S. Relations

Summary
This report provides an overview of the key issues for Congress related to Egypt and information
on U.S. foreign aid to Egypt.
The United States has provided significant military and economic assistance to Egypt since the
late 1970s. U.S. policy makers have routinely justified aid to Egypt as an investment in regional
stability, built primarily on long-running cooperation with the Egyptian military and on sustaining
the March 1979 Egyptian-Israeli peace treaty. Successive U.S. Administrations have publicly
characterized Egypt’s government as generally influencing developments in the Middle East in
line with U.S. interests.
U.S. policy makers are now debating complex questions about the future of U.S.-Egypt relations,
and these debates and events in Egypt are shaping consideration of appropriations and
authorization legislation in the 113th Congress.
Between 1948 and 2014, the United States provided Egypt with $74.65 billion in bilateral foreign
aid (calculated in historical dollars—not adjusted for inflation), including $1.3 billion a year in
military aid from 1987 to the present. The FY2014 Consolidated Appropriations Act (P.L. 113-76)
provides up to $1.3 billion in military aid to Egypt and up to $250 million in economic aid. This
report discusses the conditions governing the release of these funds. All U.S. foreign aid to Egypt
(or any foreign recipient) is subject to the approval of Congress. All U.S. military aid to Egypt
finances the procurement of weapons systems and services from U.S. defense contractors.



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Egypt: Background and U.S. Relations

Contents
Overview .......................................................................................................................................... 1
Recent U.S. Policy toward Egypt .................................................................................................... 1
Domestic Politics: The Transition Continues .................................................................................. 4
The Crackdown against the Muslim Brotherhood and non-Islamist Groups ............................ 5
Internal Violence and Conflict in the Sinai ................................................................................ 6
The Economy ................................................................................................................................... 9
Foreign Relations ........................................................................................................................... 10
U.S. Foreign Assistance to Egypt and the FY2014 Appropriations Act ........................................ 11

Figures
Figure 1. Egypt at a Glance ............................................................................................................. 3
Figure 2. Recent Pew Public Opinion Survey in Egypt ................................................................... 6
Figure 4. Egypt’s Real GDP Growth ............................................................................................... 9
Figure 5. U.S. Foreign Assistance to Egypt ................................................................................... 14

Tables
Table 1. U.S. Foreign Assistance to Egypt, 1946-1997 ................................................................. 15

Contacts
Author Contact Information........................................................................................................... 18

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Egypt: Background and U.S. Relations

Overview
Since July 2013, Egypt’s military-backed government, now led by the winner of the 2014
presidential election Abdel Fatah al Sisi,1 has been attempting to establish a political order that some
describe as a partial revival of authoritarian rule. Egyptian authorities appear to have calculated that
their attempts to impose order have enough public support, and that resistance from Islamists and
secular activists can be contained through a combination of coercion, propaganda, and economic
stimulus. Despite some predictions that the military’s campaign against the Muslim Brotherhood
would lead to civil war akin to Algeria during the 1990s, the interim government has restored a
modicum of order, though violence and disorder persist in the Sinai Peninsula and some areas of
mainland Egypt.
Whether Egypt will become more authoritarian under Sisi’s presidency is an open question. Many
observers assert that since the 2011 uprising against former President Hosni Mubarak, Egypt’s
citizens have been less intimidated by the state’s coercive power. According to one author, Egyptian
society is “more connected to the world, more opinionated, daring, and commercially and socially
entrepreneurial. No central power can control such a society for any significant period of time.”2
Others argue that the security forces will or have already reemerged as decisive actors in regulating
civil society, particularly given Egypt’s difficult economic circumstances. Those circumstances also
raise the pressure on those in control of the government to deliver on promises of improvement or
face criticism and the withdrawal of popular support.
Recent U.S. Policy toward Egypt
The military’s crackdown against dissent since ousting the country’s elected president, Muslim
Brotherhood figure Muhammad Morsi, in July 2013, has strained relations with the Obama
Administration and renewed U.S. public debate over the costs and benefits of maintaining strong
bilateral security ties with what some describe as an increasingly undemocratic Egyptian partner. In
Egypt, some elements of the military and political establishment seem to harbor deep-seated
bitterness toward the United States for what they perceive is a lack of American support for what the
military did to “stabilize” the country. The military’s narrative holds that it alone saved Egypt from
civil war, economic ruin, and Islamist totalitarianism.
Overall, there is a marked lack of consensus over the trajectory of U.S. policy toward Egypt. The
United States military, in particular U.S. Central Command (CENTCOM), which considers Egypt an
“anchor state,” 3 still views Egyptian cooperation as vital to U.S. national security interests in the
Middle East. However, a number of observers, including many U.S. democracy and human rights
advocates, argue that U.S. military support for Egypt runs counter to U.S. security interests and/or
democratic values.4 Some of these observers charge that the military’s campaign against Islamists
may ultimately further radicalize their opponents and lead to terrorist blowback against U.S.

1 For a brief profile of newly elected President Sisi, see: http://www.bbc.com/news/world-middle-east-19256730.
2 “The Forces of Centralisation cannot Recapture Egypt,” Financial Times, February 9, 2014.
3 See Testimony of General Lloyd J. Austin, III., Commander, U.S. Central Command, Committee on House
Appropriations Subcommittee on Defense, March 14, 2014.
4 “Working Group on Egypt Releases Letter to President Obama,” Project on Middle East Democracy, February 3, 2014.
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interests.5 They also argue that marginalizing secular and Islamist pro-democracy activists alienates
young, educated individuals who could contribute productively to Egypt’s future.
Key U.S. regional allies such as Israel and Gulf Arab monarchies have sought greater U.S. support
for the Egyptian government. The Israelis have voiced appreciation for recent Egyptian military
efforts to combat weapons smuggling into Gaza and terrorism in the Sinai Peninsula,6 and the Gulf
Arabs have backed Egypt’s crackdown against the Muslim Brotherhood.
The Obama Administration has attempted to craft a policy toward Egypt that seeks a middle ground,
continuing strong military-to-military ties without condoning Egypt’s crackdown against dissent.
President Obama remarked in a May 28 speech at West Point that:
In Egypt, we acknowledge that our relationship is anchored in security interests – from the
peace treaty with Israel, to shared efforts against violent extremism. So we have not cut off
cooperation with the new government. But we can and will persistently press for the reforms
that the Egyptian people have demanded.7
According to Michele Dunne of the Carnegie Endowment for International Peace, “The U.S.
administration keeps trying to split the difference, sending the message that they want to keep up
security cooperation with the Egyptian government but at the same time that they don't approve of
the coup and the massive human rights abuses that have followed.”8 Secretary of State John Kerry
has told Congress that for U.S.-Egyptian cooperation to improve, the Egyptian government needs to
be less heavy-handed against dissent. According to Secretary Kerry:
Egypt is a very vital relationship. It's a quarter of the Arab world. It has always been sort of the
hub of the region, if you will. It faces some enormous challenges right now. And we're well
aware of that. We want this interim transitional government to succeed. We are committed to try
to help make that happen. But they need to help us to help them at the same time, by
implementing some of the reforms that we've been talking with them about, with respect to
inclusivity, journalists, some of the arrests and so forth.9
Some experts believe that in order to advance U.S.-Egyptian relations, each government needs to
better understand the other’s perspective. According to Hussein Ibish, a senior fellow at the
American Task Force on Palestine, “Americans need to register that Islamists are simply not proving
popular in post-dictatorship Arab societies, and that Egypt faces a genuine threat from violent
extremists. And Egyptians need to understand that the United States government is not cheering for
the Muslim Brotherhood, but has legitimate concerns about democracy and human rights.”10
With the election of former Field Marshal and Defense Minister Sisi, U.S. and Egyptian officials
may attempt to “normalize” bilateral relations. Egypt, which is relying heavily on the financial
largesse of the Arab Gulf states and pledges of support from Russia (see additional discussion

5 “Don’t Create a New Al Qaeda,” New York Times, January 6, 2014.
6 “Congress threatens Showdown over Military Aid to Egypt, Al Monitor, March 17, 2014.
7 Remarks of President Obama, Commencement Address, West Point, New York, May 28, 2014.
8 “Defense: U.S. Apache Delivery Highlights Mixed Messaging On Egypt,” IPS, April 24, 2014.
9 House Committee on Appropriations, Subcommittee on State, Foreign Operations, and Related Programs, Hearing on
Proposed Fiscal 2015 Budget Request for the State Department and Foreign Operations, March 12, 2014.
10 “The US and Egypt begin to Recalculate their Relationship,” The National (UAE), April 29, 2014.
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below), still seeks an American partner, and is hoping that its managed political transition will be
enough to quiet its American critics in and out of government.
Figure 1. Egypt at a Glance

Ultimately, Egypt and the Arab Gulf monarchies want the Administration and Congress not only to
continue foreign assistance to Egypt without additional conditions, but also to do more financially
for a country that has structural economic deficiencies, such as high annual budget deficits, energy
shortages, and high youth unemployment. Other Arab countries, such as Tunisia and Jordan (with
Yemen possibly soon to follow), have received International Monetary Fund (IMF) lending packages
in recent years, and Egypt may seek one as well. The Arab Gulf monarchies want Egypt to return to
the good graces of Western governments so that the larger international community can support
Egypt’s struggling economy.11 To date, Saudi Arabia, Kuwait, and the United Arab Emirates have
pledged over $18 billion in direct loans, fuel subsidies, and grants to the Egyptian government, with
billions more being invested from the private sector in residential housing and commercial real
estate.12 Some reports suggest that these same countries may be preparing to assist Egypt with an

11 “Saudi King Sees Egypt Too Big to Fail Under Friendly General,” Bloomberg, January 16, 2014.
12 See, Economist Intelligence Unit, Country Report Egypt, May 8, 2014.
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additional $20 billion in aid.13 The IMF and Egypt could begin discussions for a lending program
once presidential and parliamentary elections have been completed. According to Jon Alterman of
the Center for Strategic and International Studies, “While many in the United States seem content to
let Egypt drift into the arms of deep-pocketed Gulf monarchies, the smarter strategy is for the United
States to prioritize finding common ground with those monarchies to steer Egypt in a more
promising direction.”14
Domestic Politics: The Transition Continues
Egypt’s purported transition since the military’s ouster of former President Morsi in July 2013 is
ongoing. With the passing of an amended constitution15 in January 2014 and the election of Sisi as
president, Egypt’s next step in the transitional process will be to hold parliamentary elections.16 The
lower house of Parliament has been disbanded since June 2012. The interim government is currently
drafting a new electoral law to govern parliamentary elections. A draft electoral law would establish
a 600- to 630-seat parliament with three quarters (480) of the seats elected from individual
geographical districts,120 seats elected through electoral lists, and 30 seats set aside for presidential
appointees.
Egypt’s 2014 Presidential Election
According to unofficial estimates, Abdel Fatah al Sisi easily won the 2014 presidential election with 96.9% of the vote
amidst a voter turnout estimated at about 47.4%, a percentage that was lower than Egyptian authorities’ expectations
despite the government’s last-minute and controversial call to extend voting an extra day. The runner-up, Hamdeen
Sabahi, won 3% of the ballot. In order to increase turnout, authorities granted public workers a holiday, threatened to
fine non-voters, and shut down some public shopping centers. Voter turnout in the 2012 election was 52%. Many
observers attribute the lower than expected turnout to a combination of factors, including voter apathy and a boycott by
some Islamist supporters of the Muslim Brotherhood. The European Union Election Observation Mission, which
observed the election, stated that “The Presidential Election was administered in line with the law, in an environment
falling short of constitutional principles.”17 The White House issued a statement on the election, saying “We note that
domestic and international observers concluded in their preliminary statements that Egypt’s Presidential Electoral
Commission (PEC) administered the election professionally and in line with Egyptian laws....We also share concerns
raised by observation groups about the restrictive political environment in which this election took place.”18
Sisi is likely to attempt to consolidate state power around his rule. In late March, when he resigned
as both minister of defense and field marshal, he appointed General Sedki Sobhi as the new defense

13 “Saudi Arabia and UAE readying big aid package for Egypt,” Economist Intelligence Unit, June 2, 2014.
14 “A Partnership for Egypt,” Middle East Notes and Comment - CSIS, May 21, 2014.
15 In January 2014, 98% voters (turnout was around 38%) approved an amended constitution in a public referendum that
was widely criticized by various non-governmental organizations for being held in a “constrained campaign environment.”
See Democracy International’s Findings in its Referendum Observation Mission, available online at:
http://democracyinternational.com/news/press-release-findings-di-egyptian-referendum-observation-mission.
16 The new Egyptian constitution (Article 230) specifies that either presidential or parliamentary elections should follow
the adoption of the constitution and that “procedures” to begin these elections should begin no later than 90 days after the
constitution comes into effect. In March 2014, the Interim Government passed a Presidential Elections Law, which among
other things, establishes a Presidential Elections Commission (PEC) to run elections. For a description of the electoral law,
see: http://www.atlanticcouncil.org/blogs/egyptsource/egypt-s-presidential-elections-law-a-breakdown.
17 European Union Election Observation Mission, Arab Republic of Egypt - Presidential Election - 26/27 May 2014, Press
Release, May 29, 2014.
18 The White House, Office of the Press Secretary, Statement by the Press Secretary on the Presidential Election in Egypt,
June 04, 2014.
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minister. Lieutenant General Mahmoud Hegazy replaced Sobhi as army chief of staff. According to
Michael Collins Dunn of the Middle East Institute, “the new Defense Minister and Chief of Staff are
men close to Sisi and somewhat in his image (the new Chief of Staff's daughter is married to Sisi's
son).”19 With his relations with the military leadership seemingly secure, the incoming president
may focus on broadening his support in the non-military segments of society (e.g., business
community, rural landowners, secular political parties, Salafists) without loosening his grip on
power. One major challenge he may face in pursuing this goal —based on the experience of former
President Mubarak’s last weeks in power—will be in deploying state security services (Interior
Ministry and intelligence personnel) effectively without decisively alienating key constituencies
(Interior Ministry, intelligence services).
The Crackdown against the Muslim Brotherhood and non-Islamist
Groups

For nearly a year, Egypt’s security apparatus (often referred to as the “Deep State20”), a broad term
meant to encompass the conventional military, internal security and police, and intelligence
agencies, has reversed personal and political freedoms gained in the wake of the 2011 “revolution.”
According to many observers, this campaign has been conducted with a degree of popular support
from Egyptians apparently frustrated with the disorder of the post-Mubarak period. According to
Egypt expert H.A. Hellyer, “When given the choice between a democratic system that may or may
not deliver stability in the short or medium term and a system that is backed by an extremely strong
military institution, I think the majority of Egyptians have unfortunately decided that the latter is
what they want.”21
Egypt’s Islamists: Where do they go from here?
Since the July 2013 “coup,” the Egyptian state has thoroughly weakened the Muslim Brotherhood as a functioning
organization, and many observers have questioned what Islamists will do in response over time. According to one report,
an estimated twenty percent of youth Brotherhood members say they believe anti-state violence may be their only
option.22 One expert suggests that some Brotherhood members are using social media to organize campaigns of “lower-
profile” violence against authorities using flaming aerosol cans and Molotov cocktails (See, “Egypt’s Invisible Insurgency,”
New Republic, March 19, 2014). Stil , those Brotherhood leaders who remain free or outside Egypt continue to claim
that the organization itself is committed to peaceful popular protests against a government they have deemed to be
“illegitimate.” As Egypt’s political process proceeds, it is difficult to ascertain whether the Brotherhood’s campaign is
gaining any popular support, though Egyptian Islamists claim that if they show patience and persistence, the public will
become more supportive of their cause. According to one Brotherhood member referring to a long history of Egyptian
government repression, “As the Brotherhood, we've been psychological y prepared for the long run.”23 Egypt’s Islamist
political scene, however, has other actors. Salafist political parties, such as the Nour Party, have quietly supported the
interim government, claiming that “Our policy is that we govern, we do not rule.”24 The performance of Salafists wil be
closely watched in upcoming parliamentary elections.
The interim government’s crackdown has to date primarily targeted the Muslim Brotherhood and its
supporters. The government has formally disbanded the organization, designating it as an illegal

19 “Band of Brothers: A Look at Egypt's New High Command,” Middle East Institute Editor’s Blog, March 28, 2014
20 http://www.pbs.org/wgbh/pages/frontline/foreign-affairs-defense/egypt-in-crisis/the-deep-state-how-egypts-shadow-
state-won-out/
21 “In Egypt, many Shrug as Freedoms Disappear,” Washington Post, January 8, 2014.
22 “Egyptian Brotherhood Split on using Force as Sisi poised to Rule,” Reuters, May 19, 2014.
23 “Egypt's Brotherhood Entrenched for War of Attrition,”Agence France Presse, May 21, 2014.
24 “Salafist Nour Party leader: The Brotherhood committed political suicide,” Al Sharq al Awsat, January 29, 2014.
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terrorist organization in December 2013. Most Brotherhood leaders are imprisoned and the trial of
former President Morsi and other top Brotherhood leaders is ongoing. There are no verifiable figures
on the death toll since July 2013, though the Carnegie Endowment for International Peace claims
that more than 2,500 Egyptians (protestors and police) have been killed and more than 17,000 have
been wounded.25 Human Rights Watch claims that more than 1,000 protesters have been killed since
July 3, 2013. Various press estimates suggest that since July 2013, 16,000 to 19,000 people, many of
whom are Brotherhood members or supporters, have been arrested. Numerous countries and
international organizations denounced a March 2014 court ruling that sentenced 529 Egyptians to
death in the killing of a policeman. A month later, the same judge sentenced an additional 683
Egyptians to death for assaulting a police station and killing a police officer in 2013.26 Some foreign
governments also have denounced the ongoing trial of journalists for Al Jazeera who are accused of
spreading false news in support of the Brotherhood and former President Morsi.
Egyptian authorities also have sought to
Figure 2. Recent Pew Public Opinion Survey
suppress expressions of dissent from non-
in Egypt
Islamist protestors. In November 2013, the
government replaced the state of emergency
April 2014
then in effect with what is informally
referred to as the “protest law.” This law
bans public gatherings of more than ten
people without approval from the police,
which must receive prior notification of any
planned gathering. Most importantly, the law
authorizes police to ban any protest deemed
a threat to “public order.” Some of the
leaders of the 2011 popular movement
against the Mubarak regime have publicly
opposed this law. In December 2013, Ahmed
Maher, Ahmed Douma, and Mohammed
Adel were convicted of violating the protest
law and they have remained imprisoned
despite appeals.
Internal Violence and Conflict
in the Sinai


Since the military’s July 2013 ouster of
Source: http://www.pewglobal.org/2014/05/22/one-year-
former President Morsi, Egypt’s tumultuous
after-morsis-ouster-divides-persist-on-el-sisi-muslim-
brotherhood/
post-Mubarak period has become even more
violence-plagued, though instability has not reached levels seen elsewhere in the region, such as in
Syria, Libya, Lebanon, or Iraq. Nevertheless, Egypt’s suppression of Brotherhood sympathizers
appears to have triggered counterattacks by Islamist groups (some of which appear to be more
accepting of violence as a means of political action than the Brotherhood) against state security.

25 See, http://carnegieendowment.org/2014/03/24/egypt-s-unprecedented-instability-by-numbers/h5j3
26 Most of those sentenced were tried in absentia and, upon recommendation from Egypt’s Grand Mufti, the judge has
commuted most of his earlier sentences to life in prison. Nevertheless, many Western observers believe that the sentences
have significantly damaged the Egyptian judiciary’s reputation for independence and impartiality.
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Throughout the 1990s, Egypt faced an Islamist insurgency that targeted security forces, high-level
officials, and foreign tourists; in recent months, it would seem that elements of that insurgent
campaign have resurfaced not only in the Sinai Peninsula (see below) but in the Egyptian mainland.
In late April, a car bomb killed an Egyptian police brigadier general in the Western Cairo suburb of
October 6 City.
One of the biggest concerns for Egyptian and regional stability over the past several years has been
the Sinai Peninsula, where a mix of radicalized indigenous Bedouin Arabs, foreign fighters, and
Palestinian militants from neighboring Gaza have formed terrorist cells and targeted both Egypt and
Israel. Combating terrorism in the Peninsula is complicated by limitations Egypt faces in fully
enforcing its rule over the area.27 The 1979 Israeli-Egyptian peace treaty caps the number of soldiers
that Egypt can deploy in the Sinai, subject to the parties’ ability to negotiate changes to Egyptian
deployments as circumstances necessitate.28
Since the violent police crackdown against former President Morsi’s mostly Islamist supporters in
mid-August as they protested his ouster, Islamist radical groups in the Sinai have waged an
insurgency against the security services. Militants from an array of loosely organized groups, some
of which use tactics and claim ideologies reminiscent of Al Qaeda,29 have attacked police and army
checkpoints and facilities, employing terrorist and guerilla warfare tactics.










27 Since Israel returned control over the Sinai to Egypt in 1982, the area has been partially demilitarized per the terms of
the 1979 Israeli-Egyptian Peace Treaty, and the Sinai has served as an effective buffer zone between the two countries. The
Multinational Force and Observers, or MFO, are deployed in the Sinai to monitor the terms of the Israeli-Egyptian peace
treaty.
28 Article IV (4) states, “The security arrangements provided for in paragraphs 1 and 2 of this Article may at the request of
either party be reviewed and amended by mutual agreement of the Parties.”
29 There is no known precise number of Islamist fighters operating in the Sinai, and estimates vary widely from 500 to
perhaps as many as 5,000. Press reports describing Sinai-based militant groups name the following organizations: Al-
Tawhid Wal Jihad, Mujahedeen Shura Council, Al Furqan Brigade, Ansar Bayt al Maqdis, Ansar al Jihad, Ajnad Misr
(Soldiers of Egypt) and Jund al Islam (Soldiers of Islam).
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U.S. –Designated Sinai-based Terrorist Group: Ansar Bayt al Maqdis

Source: Image of Banner from Open Source Center
The most active terrorist group in the Sinai Peninsula is cal ed Ansar Bayt al Maqdis or ABM (Companions or Supporters of
Jerusalem). On March 28, the U.S. State Department designated ABM as a Foreign Terrorist Organization (FTO) and as a
Special y Designated Global Terrorist entity.30 According to the State Department press release:
ABM is responsible for attacks on Israel and security services and tourists in Egypt. ABM -- who shares some aspects of AQ
ideology, but is not a formal AQ affiliate and generally maintains a local focus -- was responsible for a July 2012 attack against
a Sinai pipeline exporting gas to Israel. In August 2012, ABM claimed responsibility for a rocket attack on the southern Israeli
city of Eilat, and in September 2012, ABM militants attacked an Israeli border patrol, killing one soldier and injuring another.
In October 2013, ABM claimed responsibility for a suicide bombing targeting the South Sinai Security Directorate in el Tor,
which killed three people and injured more than 45. In January 2014, ABM successfully downed a military helicopter in a
missile attack, killing five soldiers on board, and claimed responsibility for four attacks involving car bombs and hand
grenades in Cairo, which left six people dead and over 70 wounded, many of them civilian bystanders. ABM has also targeted
government officials, including the September 2013 attempted assassination of the Egyptian Interior Minister, and the January
2014 assassination of the head of the Interior Minister's technical office. In February 2014, ABM expanded its targets to
include foreign tourists, and claimed responsibility for the bombing of a tour bus in the Sinai Peninsula, killing the Egyptian
driver and three South Korean tourists.31
As of late May, it would appear that while violence in the Sinai Peninsula continues, the pace and scale of terrorist attacks has
somewhat diminished. Many U.S. observers are concerned that Egypt’s security operations in northern Sinai may be too heavy-
handed and are not addressing the long term needs of the local population. According to one unnamed U.S. counter-terrorism
official, “We fear that the Egyptian government's heavy-handed tactics may be fueling recruitment for ABM or other extremist
groups in the region.... These groups are going to only get stronger if the response from the Egyptian government isn't more
calculated and more discriminating. This is a point that we have made at multiple levels to the Egyptian government.”32

30 In the Matter of the Designation of Ansar Bayt al Maqdis, as a Specially Designated Global Terrorist Pursuant to Section
1(b) of Executive Order 13224, as Amended, State Department Press Releases And Documents, April 10, 2014.
31 U.S. Department of State, “Terrorist Designation of Ansar Bayt al Maqdis,” Office of the Spokesperson, April 9, 2014.
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The Egyptian military has responded by launching a counter-offensive, particularly in northern
Sinai, in order to root out militants who have taken refuge in villages and in the rugged Sinai terrain.
The army has deployed Apache helicopters, tanks, and armored personnel carriers into de-
militarized areas33 with Israeli permission and in coordination with the Multinational Force of
Observers (MFO), which monitors force deployments. In addition, Egyptian forces have displayed a
greater commitment since the ouster of Morsi to destroying smuggling tunnels that traverse the
Egyptian-Gaza border and establishing a buffer zone that would reduce smugglers’ abilities to
reestablish operations and evade official countermeasures. Reports from inside the Gaza Strip
suggest that consumer prices have risen dramatically there due to the curtailment of smuggling. How
enduring these operations will be, and how they might be coupled with related economic and
political measures, remains uncertain, and is one area of interest for U.S. policy makers.
The Economy
Egypt’s economy is barely growing; economists project perhaps 2% growth for the current Egyptian
fiscal year, an amount that just exceeds the country’s annual population growth rate.34 For Egypt, the
good news is that the economy is no longer contracting, as some foreign direct investment has
returned, and foreign currency reserves are no longer dwindling, stabilizing at $17.4 billion as of
April 2014. They had been at $36 billion before unrest began in 2011.
Figure 3. Egypt’s Real GDP Growth

Source: Economist Intelligence Unit
However, the government remains saddled by a growing public and external debt. Total public debt
as a percentage of GDP is hovering between 89% and 93%, and the country’s external debt has

(...continued)
32 “U.S. worries its Aid to Egypt may be Misdirected,” Los Angeles Times, April 30, 2014.
33 The areas are de-militarized pursuant to Egypt’s 1979 peace treaty with Israel.
34 http://data.worldbank.org/indicator/SP.POP.GROW
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grown to somewhere between $49 billion and $56 billion. According to one financial analyst,
“Egypt is spending more than it can borrow given the low gross domestic product growth rates...It's
about having faith that you can repay... Egypt would have to grow around 5 or 6 percent in the next
three years and that's highly unlikely. It hasn't yet reached a dangerous point, but it's on a very
dangerous trajectory.”35 Almost a quarter of the Egyptian budget is dedicated to paying the interest
on Egypt’s debt.
Some analysts fear that Egypt, even with Gulf aid, could be approaching the point of insolvency
since the government continues policies that have created ever-widening annual deficits.36
Government subsidies of food and fuel,37 all of which Egypt is a net importer of, account for
somewhere between 20 and 29 percent of state spending. The interim government has launched
several stimulus packages and has actually increased state salaries for an already large public
payroll. When asked in a May 2014 television interview what kinds of economic reforms he would
champion as president, Abdel Fatah al Sisi remarked that, “The subsidies can't be removed suddenly.
People will not tolerate that.” With low growth projected and a tax system that does not generate
adequate revenue, Egypt may seek additional support from Gulf states in the form of outright grants
rather than loans.
In May 2014, the Financial Times reported that Israeli natural gas companies may be preparing to
export liquefied natural gas to Egypt.38 Egypt currently owes nearly six billion dollars to foreign gas
companies.
Foreign Relations
The Palestinians - Since the July 2013 military takeover, Egyptian authorities have reversed the
Morsi government’s policy of backing Palestinian Islamist group Hamas (a Muslim Brotherhood
offshoot). The current Egyptian rulers see Hamas as a security threat that has aided the Muslim
Brotherhood and terrorist groups in the Sinai. Over the past year, the Egyptian military has more
forcefully sought to close the underground smuggling trade beneath the Gaza-Egyptian border that
Hamas authorities rely upon for supplies and tax revenue. The interim government also has banned
Hamas from operating inside Egypt, and the courts have authorized seizures of Hamas’ assets inside
Egypt. Although Egyptian military officials have always sought to balance the need to appear loyal
to the Palestinian cause without empowering Hamas, this more aggressive containment policy
against Hamas has been viewed as effective in contributing to Hamas’ political isolation (other
factors such as Hamas’ falling out with the Asad regime in Syria also have contributed to the group’s
waning power). For months, observers speculated whether Egyptian pressure against Hamas would
force it to reconsider reunification of the West Bank and Gaza; indeed, some observers see it as a
partial explanation for the reunification agreement that was announced last month.

35 “Debt casts Deepening Shadow over Egypt's Economic Recovery,” Reuters, March 20, 2014.
36 Steven Cook, “Egypt's Solvency Crisis,” Contingency Planning Memorandum No. 20, Council on Foreign Relations,
April 2014.
37 The government currently owes $5.7 billion to foreign oil companies, and fuel shortages over the past few years have
depressed economic growth and led to periodic blackouts, though fuel shipments from the Gulf have somewhat improved
supply.
38 “Israel gas Supply Deals to Egypt and Jordan draw Closer,” Financial Times, May 21, 2014.
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The April 23 “unity” deal between rival Palestinian factions Fatah and Hamas39 may be viewed from
Egypt’s perspective as a positive diplomatic development. According to one unnamed Egyptian
military official, “Our main goal is to secure our borders and to eliminate any kind of smuggling.
But also as a side-effect, we need to see the PA in charge of the Gaza Strip. It's our business to see
the PA run Gaza, to have somebody to deal with . . . we don't have a relationship with Hamas.”40
Libya – As formerly retired Libyan Major General Khalifa Haftar wages a campaign to rid Libya of
various Islamist militias, many observers have compared his actions to those of President Sisi,
raising questions as to Egypt’s role in the conflict in neighboring Libya. To date, Egyptian media
have adopted a supportive tone toward Haftar, and Sisi during his presidential campaign noted that
Islamist fighters and unsecured weapons in Libya were becoming a major security threat to Egypt.
Russia – In recent months, Egypt and Russia have held several wide ranging discussions on the
expansion of military and economic ties41 in an effort that many believe is an Egyptian attempt to
demonstrate to the U.S. government that Egypt has alternatives when it comes to military-to-military
partnerships. The Egyptian armed forces do maintain Russian tanks and other equipment, though
according to the Defense Industry Daily, their high end inventory consists of almost entirely U.S.-
origin systems.42 Reportedly, Egypt and Russia may be discussing an arms deal involving the sale of
Russian MiG 29 fighters, anti-aircraft systems, and anti-tank missiles worth potentially $2 billion.
How Egypt would finance such a purchase is not known, though some sources are suggesting that
the Arab Gulf states would provide funding. Some Israeli press reports have suggested that the
Russian government would even consider making Egypt the first foreign customer eligible to
purchase the more advanced MiG 35. Overall, given the amount (force structure, officer training,
weapons purchases) invested in U.S.-Egyptian military cooperation over a 40-year period, it is
unclear how truly willing or able either side is to seek alternatives. According to Minister for
International Cooperation and Planning Ziad Bahaa El-Din, Egypt’s attempt to expand ties
elsewhere should not be perceived as a “zero-sum game.”43
U.S. Foreign Assistance to Egypt and the FY2014
Appropriations Act

For fiscal year 2014, Congress has appropriated $1.3 billion in Foreign Military Financing and $250
million in Economic Support Funds to Egypt; however, the delivery of assistance is subject to
certain conditions, such as:
• FY2014 funds may only be made available if the Secretary of State certifies that
Egypt is sustaining the strategic relationship with the United States and is meeting

39 Hamas is an Islamist group designated by the U.S. government and many other Western governments as a terrorist
organization.
40 “Tide of Events forces Gaza's Rulers to Negotiate, The Guardian (UK), April 26, 2014.
41 Egypt is a major importer of Russian wheat and it may be seeking discounts on the price of future wheat import deals. In
addition, both countries may be discussing long term plans to export Russian liquefied natural gas to Egypt. According to
one report, “While a deal could provide mutual benefit, Moscow will have to seriously weigh the significant financial costs
of subsidizing Egypt's ailing economy and military.” See, “Russia Finds a Potential Partner in Egypt,” Stratfor, April 17,
2014.
42 “All Over Again: Egypt Looks Beyond the USA for New Arms,” Defense Industry Daily, November 14, 2013.
43 “Egypt Says Tension with U.S. a ‘Glitch’ in Storied Ties,” Bloomberg.com, November 14, 2013.
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Egypt: Background and U.S. Relations

its obligations under the 1979 Egypt-Israel Peace Treaty. The certification was made
in April 2014.
• FY2014 funds are provided to Egypt “notwithstanding any other provision of law,”
an exemption that would allow aid to continue despite Section 7008 of P.L. 113-76
which prohibits foreign assistance to a country whose elected head of government is
deposed by military coup d'etat or decree. The Administration specifically requested
Congress to include notwithstanding authority for Egypt in executive-legislative
branch negotiations over the FY2014 appropriations bill.
• FY2014 military and economic aid to Egypt is divided into two tranches: $975
million may be released after the Secretary of State certifies Egypt has held a
constitutional referendum, and is taking steps to support a democratic transition.
$576.8 million may be released after the Secretary of State certifies that Egypt has
held parliamentary and presidential elections, and that a newly elected Government
of Egypt is taking steps to govern democratically.
• However, if the Secretary of State cannot certify the conditions stated above, then
military aid may be made available at the minimum rate necessary to continue
existing contracts, except that defense articles and services from such contracts shall
not be delivered until the certification requirements are met. Economic aid also may
be made available without certification, provided that such funds may not be made
available for cash transfer assistance or budget support unless the Secretary of State
certifies to the appropriate congressional committees that the Government of Egypt
is taking steps to stabilize the economy and implement economic reforms.
Moreover, FY2014 funds may be made available without certification provided that
they are used for counterterrorism, border security, and nonproliferation programs in
Egypt, and for development activities in the Sinai.
As described below, in late April 2014, the Administration announced that it intended to obligate
$650 million in FY2014 FMF to Egypt. This was due to the fact that U.S. holding accounts for FMF
to Egypt were running low on funds, and payments to U.S. defense contractors for defense
equipment purchased in prior years were due. However, on April 29, Senator Patrick Leahy placed
an informal “hold”44 on the $650 million notification, and it is unclear how the U.S. government will
pay the private U.S. defense companies making equipment for the Egyptian military. According to
one unnamed official, “Going back to the status quo of the past 30 years is not really an option that's
available to us.”45
Chronology: Recent U.S. Action on Foreign Assistance to Egypt
Date
Event
January 17, 2014
The President signs into law P.L. 113-76, the FY2014 Consolidated Appropriations Act.
Under the law, Congress provides $1.3 billion in FMF and $250 million in ESF, though
the full release of the funds is conditioned on certifications that first must be made by
the Secretary of State.

44 Congressional holds on foreign aid are not legally binding on the executive branch. However, since the late 1970s/early
1980s, successive Administrations have generally deferred to holds placed by Members of pertinent committees. This is
part of a process by which the executive branch consults with Congress to provide it with information or otherwise address
committees’ concerns prior to obligating funds subject to a hold.
45 “Amid Egypt rights abuses, U.S. stalls over more military aid,” Reuters, May 20, 2014.
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Egypt: Background and U.S. Relations

March 4, 2014
The Administration releases its FY2015 Congressional Budget Justification, which seeks
$1.3 billion in FMF for Egypt, but only $200 million in ESF, or $50 million below the
appropriation for the last six fiscal years.
April 22, 2014
The Obama Administration announces that it will resume delivering ten Apache
helicopters to Egypt of which it had suspended delivery in October 2013. In addition,
the Administration certifies to the Appropriations Committees, as mandated in the
FY2014 Appropriations Act, that Egypt is “sustaining the strategic relationship with the
United States; and meeting its obligations under the 1979 Egypt-Israel Peace Treaty.”
However, Secretary of State John Kerry, in a phone call to the Egyptian Foreign
Minister, indicated that he is not yet able to certify that Egypt is taking steps to support
a democratic transition, as required by P.L. 113-76, in order to release two separate
tranches of military aid.
April 25, 2014
The State Department notifies Congress of its intent to obligate $650 million in
FY2014 FMF to Egypt under the authorities provided to it by Congress in Section
7041(a)(3) and (a)(5) of P.L. 113-76.
April 28, 2014
An Egyptian judge, who a month earlier had sentenced 529 men to death for killing a
police offer, sentences another 683 men to death for a similar crime.
April 29, 2014
Senator Patrick Leahy stated that “I am extremely disturbed by the Egyptian
Government’s flouting of human rights and appalling abuse of the justice system, which
are fundamental to any democracy. I am not prepared to sign off on the delivery of
additional aid for the Egyptian military until we have a better understanding of how the
aid would be used, and we see convincing evidence that the government is committed
to the rule of law.”
May 13, 2014
In report language accompanying H.R. 4435, the National Defense Authorization bill
for FY2015, House Armed Services Committee Members note their support for the
President's decision to provide Apache aircraft to the Government of Egypt. According
to the report, “The committee further believes that the United States should provide
necessary security assistance to the Government of Egypt, specifically focused on areas
of mutual security interest. The committee remains concerned that if the United States
does not engage through security assistance with the Government of Egypt and the
Egyptian military, then other countries, such as the Russian Federation, may fill this gap,
which would work at cross-purposes with vital U.S. national security interests.... The
committee is concerned by reports that there may have been human rights violations
that have occurred in Egypt. The committee encourages the next President of Egypt to
address the economic and political needs of the Egyptian people, including the
protections for individual freedom and human rights reflected in the new Egyptian
constitution.”
May 21, 2014
In an interview in Brussels, seemingly intended to allay some observers’ concerns,
General Martin Dempsey, Chairman of the U.S. Joint Chiefs of Staff, remarks that he
believes the Egyptian military would use U.S. weapons for their intended purpose and
that the U.S. military has oversight mechanisms in place to ensure Egyptian compliance
with U.S. law. According to General Dempsey, “If they were to use them for purposes
that violated the end-use agreement, then we have the ability to interdict the supply
chain and that system would not be much use to them any longer.”46
June 3, 2014
According to one press report, ten Apache helicopters remain in storage six weeks
after administration announced their release to the Egyptian government.47 According
to one unnamed State Department official, “The aircraft are in storage at Fort Hood,
Texas....We are making decisions with respect to our assistance to Egypt in
consultation with Congress, and are working to determine when the Apaches would
be shipped.”

46 “U.S.-Egypt Military ties will Depend on Egypt's Actions -U.S. general,” Reuters, May 21, 2014.
47 “Obama Administration holding up Apache Helicopters to Egypt,” Al Monitor, June 3, 2014.
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Egypt: Background and U.S. Relations


Figure 4. U.S. Foreign Assistance to Egypt
$s in millions

Source: Created by CRS.
a. In FY2009, Egypt received $200 mil ion in ESF from P.L. 111-8, the FY2009 Omnibus Appropriations Act. It
then received an additional $50 mil ion in ESF from P.L. 111-32, the FY2009 Supplemental Appropriations
Act.Click here and type table note
b. Reduced due to sequestration.


Congressional Research Service
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Table 1. U.S. Foreign Assistance to Egypt, 1946-1997
($ in millions)
Military
IMET
Misc. Econ
Year Total Loan Military
Grant
Grant
Grant
DA Loan DA Grant
ESF Loan
ESF Grant
PL. 480 I
PL. 480 II
1946 9.6



9.3 Surplus
— —

— — —
0.3 UNWRA
1948
1.4

— —
1.4
Surplus — —

— — —
1951
0.1 Tech
0.1 — —

Asst
— —

— — —
1952
1.2 — —



0.4 — —

0.8
1953
12.9 — —



12.9 — —


1954
4.0 — —



3.3 — —

0.7
1955
66.3 — —


7.5
35.3 — —

23.5
1956
33.3 — —



2.6 — —
13.2
17.5
1957
1.0 — —



0.7 — —

0.3
1958
0.6 — —



0.0 — —

0.6
1959
44.8 — —



2.0 — —
33.9
8.9
1960
65.9 — —


15.4
5.7 — —
36.6
8.2
1961
73.5 — —



2.3 — —
48.6
22.6
1962 200.5 — —


20.0
2.2 20 —
114.0
44.3
1963 146.7 — —


36.3
2.3 10 —
78.5
19.6
1964
95.5 — —



1.4 — —
85.2
8.9
1965
97.6 — —



2.3 — —
84.9
10.4
1966
27.6 — —



1.5 — —
16.4
9.7
1967
12.6 — —



0.8 — —

11.8
CRS-15


Military
IMET
Misc. Econ
Year Total Loan Military
Grant
Grant
Grant
DA Loan DA Grant
ESF Loan
ESF Grant
PL. 480 I
PL. 480 II
1972
1.5

— — — 1.5 —

— — —
1973
0.8

— — — — —

— — 0.8
1974
21.3

— — — — —

8.5 9.5 3.3
1975
370.1

— — — — — 194.3
58.5
104.5
12.8
1976 464.3
— —



5.4
150.0
102.8
201.7
4.4
TQ
552.5

— — — — — 429.0 107.8
14.6 1.1
1977
907.8

— — — — — 600.0
99.2
196.8
11.7
1978 943.2
— —
0.2
0.1
Narc.


617.4
133.3
179.7
12.5
1979
2,588.5 1,500
— 0.4 — — — 250.0 585.0
230.7
22.4
1980 1,167.3 — —
0.8



280.0
585.0
285.3
16.1
1981 1,681.2
550 —
0.8



70.0
759.0
272.5
28.9
1982 1,967.3
700
200.0
2.4


— —
771.0
262.0
31.9
1983 2332.0
900
425.0
1.9


— —
750.0
238.3
16.8
1984 2,470.8
900
465.0
1.7


— —
852.9
237.5
13.7
1985 2,468.7 —
1,175.0
1.7


— —
1,065.1
213.8
13.2
1986 2,539.1 —
1,244.1
1.7


— —
1,069.2
217.5
6.6
1987 2,317.0 —
1,300.0
1.8


— — 819.7
191.7
3.9
1988 2,174.9 —
1,300.0
1.5


— — 717.8
153.0
2.6
1989
2,269.6
— 1,300.0 1.5 — — 1.5

815.0
150.5 1.2
1990 2,397.4 —
1,294.4
1.6


— — 898.4
203.0

1991 2,300.2 —
1,300.0
1.9


— — 780.8
165.0
52.5
1992 2,235.1 —
1,300.0
1.8


— — 892.9
40.4

CRS-16


Military
IMET
Misc. Econ
Year Total Loan Military
Grant
Grant
Grant
DA Loan DA Grant
ESF Loan
ESF Grant
PL. 480 I
PL. 480 II
1993 2,052.9 —
1,300.0
1.8


— — 747.0

4.1
1994 1,868.6 —
1,300.0
0.8


— — 561.6
35.0
6.2
1995
2,414.5
— 1,300.0 1.0 — — 0.2
— 1,113.3 — —
1996 2,116.6 —
1,300.0
1.0


— — 815.0

0.6
1997 2,116.0 —
1,300.0
1.0


— — 815.0


Total 45,669.4 4,550
17,803.5
27.3.0
11.2
80.7
82.8
2,620.7
15,923.8
4,114.3
455.1
Notes: Totals may not add due to rounding. No U.S. aid programs for years 1947, 1949, 1950, 1968, 1969, 1970, and 1971. P.L. 480 II Grant for 1993 includes $2.1
million in Section 416 food donations.
TQ = Transition Quarter; change from June to September fiscal year
* = less than $100,000
IMET = International Military Education and Training
UNRWA = United Nations Relief and Works Agency
Surplus = Surplus Property
Tech. Asst. = Technical Assistance
Narc. = International Narcotics Control
DA = Development Assistance
ESF = Economic Support Funds
PL 480 I = Public Law 480 (Food for Peace), Title I Loan
PL 480 II = Public Law 480 (Food for Peace), Title II Grant

CRS-17

Egypt: Background and U.S. Relations


Author Contact Information

Jeremy M. Sharp

Specialist in Middle Eastern Affairs
jsharp@crs.loc.gov, 7-8687


Congressional Research Service
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