"A sign of crisis"
On 29 September, the Central Bank of Egypt released statistics showing the country's total foreign debt had risen 41 per cent, to $79 billion, in a single year. Egypt's debt totalled $34.4 billion, half current levels, as recently as 2012. Foreign debt has risen to 34 per cent of GDP according to central bank figures.
Analysis conducted by Salma Hussein, a researcher in economic and social justice at the Egyptian Initiative for Personal Rights (EIPR), and the author of a 2016 study on Egypt's debt, shows changes in the character of and politics associated with the debt. "There is a rapid increase in foreign debt since November 2016, and when you look, the central bank is responsible for most of this debt, meaning there is a huge amount of foreign debt that is taken on totally away from the eyes of parliament," Hussein told Qantara.de.
According to EIPR's research, Egypt's reliance on external debt sourced from the Egyptian government's political allies in the Persian Gulf – particularly Saudi Arabia, the United Arab Emirates and Kuwait – has risen markedly since 2015. The new debts taken on by Egypt's central bank are not subjected to monitoring or scrutiny by Egypt's parliament, interest terms are often kept private, and the loans aren't linked to specific deliverable projects, according to Hussein. "To me this is a sign of crisis: it means you need foreign currency immediately just in order to breach a shortage, rather than it being well designed and calculated debt where you know where it's going and what it's for – it's a fragile situation," she said.
Egypt's main creditors are the Arab states of the Persian Gulf and international financial institutions such as the IMF, the World Bank and the Paris Club, which is composed of 22 members including the United States, United Kingdom, Germany and France. The country's external debt per capita has increased from $475 in 2013 to $812 in 2017, high levels for a less economically developed country. A significant portion of the debt Egypt is taking on is going to service government budget deficits and prestige projects such as a new administrative capital city in the desert outside Cairo, not long-term infrastructural investment that boosts the economy.
Egypt has been increasingly taking on debt by issuing eurobonds in international capital markets at high bond yields, meaning international investors are benefiting from high interest-rate lending to Egypt. Analysts say much of the foreign debt is from speculative capital injections, or "hot money". In 2012, Egypt's foreign debt was composed of 88 per cent long-term loans with maturities longer than three years. Now, just 59 per cent of the country's debts have long-term maturities, while 17 per cent are short-term loans of one year or less with high interest rates.
"Egypt's debt to GDP is reaching very worrying levels," said Osama Diab, an economic researcher at the Tahrir Institute for Middle East Policy (TIMEP). "When we talk of debt to GDP, we shouldn't be comparing Egypt to rich European countries and say Egypt's debt level is equal to Belgium's or less than Japan's, because unlike these countries, Egypt suffers from very weak government finance, so when you compare the debt to tax revenues, the picture even looks more bleak," he said.
Egypt's rising level of debt is not an isolated phenomenon; the rise has been accompanied by a stringent IMF-directed fiscal austerity programme (attached to a $12 billion IMF loan) that has had deep effects on Egypt's economy.
In November 2016, the central bank floated the Egyptian pound, doubling the prices of most goods overnight. Subsidies for key commodities such as sugar, cooking gas and petrol have been cut, hiking prices to triple pre-IMF deal levels. Inflation soared throughout 2017, and the latest figures show an inflation rate of 26 per cent. Although the programme was announced with a carefully planned IMF public relations campaign, the austerity measures have been unpopular. In July, Mohamed Adel, a well known political activist, was detained by the police for "insulting the IMF" after criticising the changes.
The IMF appears content with Egypt's management of the austerity programme. In August, the Fund's in-house journal, GlobalMarkets, named Egypt's Central Bank governor Tarek Amer "central bank governor of the year". Meanwhile, new debts keep mounting. On 5 December, the World Bank approved a further $1.15 billion loan to Egypt as the final tranche in a total of $3.15 billion in loans.
Egyptian officials are publicly confident that the debts are manageable. "Egypt has never failed in repaying its foreign debts on time," Finance Minister Amr el-Garhy told local media on 2 December in response to questioning over debt servicing in 2018.
However, independent analysts are concerned. Since the adoption of an IMF austerity programme last year, Egypt's central bank has imposed high interest rates in an attempt to control inflation rates. "This strategy might be effective in controlling inflation, but it is exposing the country to the risk of default in the Argentina or the Greek style, where the debt is in a currency which the central bank cannot print," said TIMEP's Osama Diab. "The massive debt servicing bill that is resulting from all this borrowing plus the austerity measures imposed by the IMF has led to a large decrease in real health and education spending, which will, of course, disproportionately affect the poor," Diab said.
The additional borrowing does not appear to be benefiting the country's poor, who are struggling with higher prices for basic goods. "The government is making some efforts to reduce the burden of cutting subsidies through income transfers to poor families, but they have only reached 2 million families and there are perhaps 15 million poor families in Egypt, so it's a very small fraction of the poor," said Alia al-Mahdi, professor of economics at Cairo University.
"I don't object to foreign debt in principle, but I object when it's beyond usual levels – and these are exceedingly high levels," al-Mahdi said. "We are removing the subsidies and replacing them with a new burden that exceeds that of the subsidies, which is the foreign debt."
© Qantara.de 2018