* Saudi funds part of $2.7 bln support package
* Seen as sign of improved ties after diplomatic spat
* Intl donor support a requirement for $3.2 bln IMF loan
CAIRO, May 10 (Reuters) - Saudi Arabia has transferred $1 billion to Egypt’s central bank in a move that could help Cairo secure a $3.2 billion IMF loan and that signals an improvement in ties between states that were close allies under Hosni Mubarak.
Saudi Arabia and other Gulf states had pledged billions of dollars in support to Cairo following the uprising that swept Mubarak from power in February 2011, but Egypt has complained that little has arrived to help an economy hit by 15 months of turmoil.
The $1 billion, eight-year deposit transferred by Riyadh follows the return of the Saudi ambassador to Cairo on Saturday. He had been withdrawn from Cairo for a week because of Egyptian street protests against Saudi Arabia that triggered the worst diplomatic crisis between the states in decades.
Egypt’s Planning Minister Faiza Abu el-Naga said “coordination was ongoing” with Saudi Arabia about remaining elements of a $2.7 billion aid package first broached with Riyadh a year ago.
In addition to the $1 bln deposit, the Saudi package includes $500 million of support for development projects, $250 million to finance purchases of petroleum products and $200 million for small- and mid-sized firms, Abu el-Naga said in a statement.
She made no mention of $750 million of Egyptian treasury bonds that Saudi Arabia had also been expected to buy.
Last year’s uprising chased away tourists and foreign investors, two of Egypt’s main sources of foreign currency, and economists say the country will need a minimum of $11 billion over the next year to stave off a balance of payments crisis and a potential devaluation of its currency.
Egypt had been asked by the International Monetary Fund to line up additional resources from international donors as a condition for releasing the $3.2 billion loan. Cairo must also come up with an economic programme that has broad domestic political support before the IMF will release the funds.
An Egyptian official said last month Saudi Arabia had agreed to transfer funds including the $1 billion deposit by the end of April. But a week later Riyadh recalled its ambassador following the street protests in Cairo set off by the arrest of an Egyptian lawyer in Saudi Arabia.
Saudi Arabia’s move to withdraw its ambassador was seen as a reminder to Cairo to keep good ties with Riyadh. Analysts believe the conservative monarchy has been ill at ease with the rise of the Muslim Brotherhood - an Islamist group with wide regional influence - since Mubarak was deposed.
The Brotherhood is the biggest group in the Egyptian parliament. Brotherhood MPs were part of a delegation which went to Saudi Arabia last week to help resolve the diplomatic spat.