Alarm in Cairo as foreign debt rises to $88.1 billion
CAIRO - Foreign debt statistics are setting off alarms in Cairo with economists warning of the toll rising debts will have on Egypt’s ability to repay international creditors and move advance development plans.
Foreign debts reached $88.1 billion at the end of March, from $82.2 billion at the end of December last year, the Central Bank of Egypt said. This raises foreign debt to 36.8% of GDP, from 36.1% at the end of last year, the central bank said.
“These rising foreign debts are a major burden on the national economy,” said Alia al-Mahdi, an economics professor at Cairo University. “The government will have to repay the debts and their interest as it tries to move ahead with development, something that can be impossible to do.”
Egypt was forced to borrow as it tried to put the economy on track following unrest stemming from the 2011 revolution. With political discord and deteriorating security conditions taking a toll on the economy, the government applied for loans, including from the International Monetary Fund, which lent Egypt $12 billion.
In 2015, foreign debts totalled $46 billion but Cairo’s desire to bridge a yawning budget deficit and increase foreign currency reserves meant that debts continued to shoot up. Egypt will pay about $30 billion in foreign debt services within the 2018-19 budget, which started in July.
Total spending in the budget is $77.7 billion and the budget predicts a deficit of $24 billion. This means that Egypt will continue to borrow to close the deficit and keep the economic wheel going.
Cairo needs subsidise food for more than 70 million people in the national food rationing system and subsidise fuel and electricity. A total of $4.7 billion has been allocated for food subsidies in the budget, $4.9 billion for fuel subsidies and $880 million for electricity subsidies.
Egypt also plans to upgrade the national health system and modernise tens of thousands of schools. It wants to complete a series of megaprojects, including a new capital between Cairo and Suez, thousands of kilometres of roads and a long list of new cities to sustain the national urban crush and the runaway population growth.
The government says there is no need for alarm so long as the economy generates enough money for the repayment of the debts.
“There is no need for worry because the foreign debt ratio to the gross domestic product is still within safe limits,” Finance Minister Mohamed Maait told The Arab Weekly. He added that Egypt had always honoured its obligations to international organisations.
This was done, he said, even during the 2011 uprising when the economy was deeply affected by deteriorating political and security conditions. Still, Egypt recently came close to repaying all its debts, which totalled billions of dollars, to international petroleum companies operating in it.
The fear, however, is that the current borrowing policy will have deep effects on the economy.
“This borrowing policy will get us nowhere if the government insists to keep pursuing it,” Mahdi said.
Egypt pins its hopes on the recovery injecting fresh cash into the economy and encouraging foreign investments, production and exports. Economic planners expect economic growth at 5.8% in the current fiscal year, from 5.5% in the previous one.
That rate might be feasible with the tourism sector picking up, the exports rising and market activities increasing after repeated drops in bank interest rates.
Economists say, however, that for Egypt to avoid a further increase in foreign debts, it must stimulate production and attract investments.
“The stimulating of production will increase the exports, generate jobs and reduce dependence on imports,” said Farrag Abdel Fattah, another economics professor at Cairo University. “These are all necessary measures for the economy to pick up in ways that make us do without further borrowing.”