Will Egypt get handle on its public debt?

CAIRO — On the sidelines of the Euromoney Egypt Conference on Sept. 4, Egyptian Finance Minister Mohamed Maait announced his ministry's intention to submit a proposal to the Cabinet to establish a foreign debt ceiling. Maait said that he would be submitting a plan in the coming weeks to manage Egypt's foreign debt, which, according to the Central Bank of Egypt (CBE), stood at $88.2 billion in March. That was up from $82.9 billion in December 2017 and $79 billion in June 2017. Maait also said that domestic debt had totaled $194.9 billion in March.

Medhat al-Sherif, a member of parliament’s Economic Committee, told Al-Monitor that the country's serious levels of debt had in mid-September prompted his committee to announce several steps aimed at managing the foreign component. Although parliament's most recent session officially ended in July, Sherif's committee continues to follow up on issues discussed during the session and has asked Prime Minister Mustafa Madbouly for a statement detailing all loans and grants received by the government.

As for parliament's public debt management plan, Sherif said his committee is proposing the formation of a subcommittee tasked with managing loans and debt through feasibility studies and optimization mechanisms. The subcommittee members, Sherif said, would consist of the ministers of finance, international cooperation, follow-up and administrative reform, planning and foreign affairs along with the governor of the CBE. The prime minister would head the committee and be tasked with developing loan feasibility studies.

According to Sherif, the Economic Committee found that the loan feasibility studies prepared by the state institutions receiving loans have only provided superficial information, and the loan recipients have failed to optimize the funds. He said the problems with debt management will have repercussions for generations to come if not addressed.

Hassan al-Sayyid, who also sits on the parliament's Economic Committee, told Al-Monitor that in a bid to develop a debt optimization strategy, his committee plans to hold meetings with government members during the next legislative session, which begins in two weeks, to review the debt issue and proposals drafted by the committee itself and by the government.

He said that one of the committee's recommendations will be to move away from acquiring funding from local banks, through the sale of treasury bonds. These loans, he said, constitute a burden on the budget given their high interest rate, which currently stands at 18%. Interest on foreign loans, however, does not exceed 5%, and lenders offer a grace period before repayment begins. Therefore, in the case of national projects that can only be financed by loans, the committee will recommend foreign rather than domestic loans.

Parliament’s Economic Committee is not the only body hoping to take action on Egypt's debt problem. Essam al-Faki, secretary of parliament’s Budget Committee, announced to the press on Sept. 10 that his committee will also summon Maait to discuss his views on the debt's management. He said the government has yet to submit a plan to the committee on the debt ceiling and debt management.

Faki said in a press statement that the members of the Budget Committee had called on the Finance Ministry to form a public debt department to focus on the management of foreign and domestic debt. According to him, Egypt’s domestic debt accounts for 87% of total public debt and that this type of debt can be dealt with in several ways.

One approach for decreasing domestic debt, Faki said, is to list government-owned companies on the stock market. Creditor banks can then purchase shares in debtor companies in lieu of the companies having to repay loans. This is what happened in March, when the government listed 20 companies on the Egyptian Exchange. Chief among these was the Alexandria Mineral Oils Company.

Faki said that Egypt should try to revive economic grant contributions. During 2013 and 2014, after the June 30 mass protests and toppling of Mohammad Morsi's government, Egypt received economic assistance in the form of grants totaling $25 billion. Among the donors were Saudi Arabia and Kuwait, each of which contributed $4 billion. Additional grants came from the European Union and international institutions working in the fields of development and education. In 2017, aid grants to Egypt had declined to $1.3 billion.

Faki stressed that ceilings and red lines will be set for foreign debt in order to reduce borrowing. To save money, resort to loans should be restricted to only when absolutely necessary. He suggested selling off state lands and companies for this purpose, believing that this alone could save 1 trillion pounds ($55.6 billion) at the least.

Elhami al-Merghani, a researcher in charge of the economic dossier of the Socialist Popular Alliance Party, told Al-Monitor that Egypt's debt servicing had jumped from 182 billion pounds ($10.2 billion), or 24.5% of budget expenditures for 2013-14, to 541.3 billion pounds ($30.2 billion), or 38% of budget expenditures for 2018-19.

To reduce the burden of debt, according to Merghani, Egypt should stop borrowing to finance consumption. Instead, loans should be aimed at establishing productive projects, reforming the public sector and attracting agricultural and industrial investments. They should also be geared toward employing the inactive workforce and reviving idle factories. This would provide added value and create job opportunities while reducing imports. Such an approach would be preferable to Egypt having to perhaps pursue additional loans with restrictive conditions like that obtained from the International Monetary Fund in 2016.

Merghani further stated that progressive taxes should be imposed on corporate profits and stock exchange transactions to bring in revenue for the state and that the privatization effort introduced by President Hosni Mubarak should be brought to a halt.