The latest indices of domestic public debt hit an alarming EGP 1.387tn (about $200bn) in April, posing a threat to the general treasury and causing an economic slowdown, experts warn.
Debt rose unprecedentedly since March last year, reaching EGP 1.089tn, or 80% of the nation’s GDP, the Ministry of Finance said in a report published in March.
The government’s report attributed this to the increased issuance of treasury bills and bonds.
Osama El-Manyalawy, a deputy treasury manager at a banking corporation, highlighted that the increase of internal debt affects the individual’s share from the GDP.
He stated that the internal debt has subjected citizens to higher interest rates, which may hold back the economy’s growth.
“Internal debt is considered much more dangerous than foreign debt,” economic expert Karim Helal said.
“In the last two years, there were politicised economic decisions that further increased the debt, such as increased governmental incentives,” he said.
Helal explained that the impact of the high internal debt will increase expenditures and reduce revenues, “leading to crowding-out effect, which will reduce the liquidity in banks.”
On the other hand, economic expert Magdy Tolba said record-high external debt also has a severe impact on the economy, pointing out that foreign debts are mainly based on the price of foreign currency, “which is hugely changeable from time to time,” leaving the state liable to market fluctuations.
“When the price of the US dollar declined from EGP 7.5 to EGP 6, Egypt’s foreign debts decreased from 30 % to 25 %,” he explained.
As of last April, Egypt’s foreign debt has increased by $8bn, reaching $42bn compared to $34.4bn last year. The country’s recorded external debt after former president Hosni Mubarak stood down was around $33bn.
The debt increase has led global finance rating company Standard & Poor’s to lower the credit ratings of local banks National Bank of Egypt, National Société Générale Bank (NSGB), Banque Misr and Commercial International Bank (CIB) to CCC+.
“A part of the budget revenues is allocated to pay debts back to the creditors; consequently it decreases expenditures that should be spent on other basic facilities and services like education, electricity and investments,” Tolba explained.
The rise in debt is also expected to halt the country’s ability to receive more loans. Egypt has been holding talks over the past two years with the International Monetary Fund (IMF) to get a $4.8bn loan to bridge the Middle East’s biggest budget deficit.
Helal said internal debt plays an important factor when foreign lenders consider giving Egypt aid.
“Internal debt is the first thing foreign lenders look at when considering granting Egypt loans,” he said.
Egypt has already received loans from several neighbouring countries like Qatar, Saudi Arabia, Libya and Turkey.
Qatar’s share alone of Egypt’s official foreign debt, which currently stands at $38.8bn, has risen to more than 16% and is expected to reach $41.8bn once new loans are added.
Manyalawy rejects fears of bankruptcy, saying the subject of internal debt dates back to the regime of ousted president Hosni Mubarak and these high indices are “an accumulated result of its corruption, but aren’t likely to cause bankruptcy.”
“We have many ways to pay back, but solutions are painful” and must be taken when necessary, he said without elaborating.
However Helal said Egypt has resorted to imposing more taxes as a solution, but imposing more taxes, he believes, “will lead to more negative impacts in the future.”
Other experts downplayed the significance of increasing internal debt, saying more attention should be cast on external debts figures.
“In the era of Mubarak, there was real stability, the country started to handle a part of its foreign debts, consequently the government was able to pay back its internal debts,” said Sherif El-Khereiby, an economic expert.
“Internal debt has no huge impact on the economy, compared to foreign debts, and its indices are still under control,” said Hesham Shawky, an official at Arab Investment Bank.