A new increase of $15 billion: The external debt crisis worsens in 2020

Central Bank of Egypt data showed an increase in Egypt’s external debt within one year by about $15 billion, amid warnings by specialists of the danger of this glut of debts to the economy and citizens.

The Egyptian external debt jumped to $123.4 billion by the end of 2020, after it had reached at the end of last year about $108.6 billion. The data revealed that by the end of 2020, the debt interest increased to $17.2 billion, which means that these interests eat up most of the Egyptian state’s revenues. The value of the cost of external debt during the last fiscal year in light of the worsening debt exceeded Egypt’s proceeds from important sectors such as oil and gas exports, tourism, or net foreign direct investment.

According to the World Bank’s International Debt Statistics 2021 report, data showed that Egypt’s external debt rose by 14.9 per cent. The report pointed out that these sums included the withdrawal of $13.1 billion from International Monetary Fund loans, about $90.7 billion for long-term commitments, and EGP 11.3 billion for short-term liabilities. A large part of the external debt is due to the issuance of international bonds and the disbursement of the remaining part, worth $4 billion, from the extended credit facility agreement, which Egypt signed with the International Monetary Fund in 2016, worth $12 billion.

Impotence and justifications

At the beginning of this year, the Finance Ministry said it would stop issuing international bonds. Still, it returned to borrow from international markets last May to finance the budget deficit. The Ministry of Finance said that the budget deficit has worsened after the decline in revenues due to the COVID-19 pandemic, in addition to the government announcing a financial stimulus plan worth EGP 100 billion ($6.369 billion) last March. The Ministry of Finance’s justifications come despite economists’ statements that the government has benefited from the corona pandemic by imposing additional taxes that it obtained from employee salaries and many external grants to confront the virus.

Last October, Finance Minister Mohamed Maait said that the Egyptian economy lost about EGP 220 billion ($14.012 billion) from its revenues during the last fiscal year 2019-2020 due to the corona pandemic. He pointed out that the new epidemic put the state budget under pressure due to the decline in tax revenues due to the partial closure restrictions that lasted for three months during the second quarter before easing them. He revealed the collapse of tourism revenues after the suspension of flights. The revenues of the Suez Canal were also affected by disruptions to global trade, he said. The government borrowed an additional $8 billion from the International Monetary Fund, and last May sold international bonds worth $5 billion in the largest offering of Egyptian international bonds.

Impacts and Risks

The continuous hikes in Egypt’s foreign debt come amid warnings from experts and economists of the situation’s seriousness, while Egyptian officials claim that the situation is still safe. Many experts warned that the high external debt is a time bomb that could explode in the event of the Egyptian government defaulting on payment or a significant decline in Egypt’s gross domestic product. Capital Economics had described the increase in Egypt’s external debt since 2015 as a lot higher.

Some members of the House of Representatives Legislative Committee had criticised the contradiction in the government’s complaints about the loan policy and its accumulation on the state’s general budget, and the parliament’s continued approval of loans. Last February, Prime Minister Moustafa Madbouly justified, during press statements, the increase in the volume of external debt by the state’s expansion in borrowing from abroad during the last period. Madbouly said that this expansion of external borrowing is to bridge the financing gap and solve the foreign currency shortage in the market.