Despite the government’s hopes to shrink the internal and external debts, announcements of new loans and investment pledges from Arab and international institutions and governments have not stopped.
Financial assistance from Arab countries, following the ouster of former Islamist president Mohamed Morsi, has pushed the external debt level to more than $46bn through the end of June 2014, prompting President Abdel Fattah Al-Sisi to place decreasing debt among his goals during his term.
On his first day as a president, Al-Sisi called for a conference that would “economically assist Egypt”, asking foreign countries to invest in government-proposed projects.
The conference, which was later named the Egypt Economic Development Conference (EEDC), occurred in March 2015 and witnessed the signing of loan agreements and investment opportunities worth $38.2bn, according to official figures.
While the EEDC increased the debt burden, the conference was seen as a success by the government as it boosted foreign reserves to approximately $20.5bn, reinforced by deposits from Saudi Arabia, Kuwait, and the UAE, worth $6bn in total.
The surplus of foreign reserves did not last long as the repayment schedule for previous debt has still been loading the foreign reserves, which recorded $16.445bn in December 2015.
The external debt stood at $39.8bn at the end of March 2015, with $24bn being government debt and $15.8bn being non-government debt.
This, however, is low compared to the $248bn in domestic debt.
Egypt’s total debts on the eve of the 25 January Revolution amounted to EGP 1.17tn (approximately $149bn). This value excludes the relieved debt that Egypt owed to the United States after Cairo’s participation in the Gulf War.
After March, at least $8.3bn in loans had been agreed to by Egyptian ministries in different development sectors.
A source inside the Ministry of Finance disclosed that at the end of September 2015, external debt had reached $46.1bn (12.7% of GDP), which he said is relatively low compared to other Middle East and North Africa (MENA) countries.
From the government’s point of view, the fiscal reforms it implemented in the previous fiscal year pushed GDP growth to about 4.2%, compared to 2.2% in the previous year. Furthermore, it contends that its policies led to a decline in the unemployment rate, to 12.8%, down from 13% in the previous fiscal year.
The Central Bank of Egypt (CBE) will have to pay $700m of its debt to the Paris Club. It also decided to repay the dues of dollar bonds, worth $1bn, which were issued previously by Qatar during the presidency of Mohamed Morsi.
Total amount of debt owed to the Paris Club is not officially disclosed, but the government pays an instalment of $700m twice a year.
The former assistant of the executive chairman of the International Monetary Fund (IMF), Fakhry El-Fekky, said the loans Egypt has access to stem from its historical right as a founding member of several key financial institutions. Accordingly, El-Fekky contends that Egypt can obtain loans on “nice terms”.
El-Fekky, who is also an economics professor at Cairo University, said these institutions include: the World Bank, the African Development Bank, the European Bank for Reconstruction and Development, and the Islamic Development Bank.
He considered these loans as beneficial to the government as the government plans to use them to finance infrastructure projects.
Loans approved by the government after the EEDC
One month after the EEDC, in April 2015, the Kuwait Fund for Arab Economic Development (KFAED) announced it would lend Egypt a total of $1.5bn over a five year period. During that time period, Egypt will receive an amount worth $300m annually, Abdulwahab Al-Bader, managing director of the fund said at that time.
In the same month, the Ministry of International Cooperation signed a KWD 60m (equivalent to approximately $216m) agreement with the Arab Fund for Economic and Social Development (AFESD) to support the expansion of the West of Cairo power plant project.
The West Cairo power plant has received another $100m loan from the Saudi Fund for Development (SFD) in November.
Also, on the side-lines of the spring meeting of the World Bank and International Monetary Fund (IMF), a loan worth $400m for the Egyptian government has been finalised. The loan, provided by the World Bank, was said to be used to support the Egyptian government’s social welfare programme entitled “Solidarity and Dignity” (Takafol w Karama).
In May, the Egyptian government and the African Development Bank (AfDB) signed two loan agreements totalling $140m alongside a grant of approximately $1.7m to be used for the development of the second phase of Sharm El-Sheikh’s international airport.
In October, the Arab Monetary Fund (AMF) approved an Egyptian loan request worth $339m to support reform of Egypt’s financial and banking sector.
Moreover, the National Bank of Kuwait (NBK) and the European Bank for Reconstruction and Development (EBRD) signed a loan contract with Egypt valued at $50m to finance small and medium-sized enterprises (SMEs).
In December, Ministry of International Cooperation and the African Development Bank (AfDB) signed a grant agreement worth $650,000 to finance the first phase of the initial studies for the establishment of a cross-continent shipping line connecting the Mediterranean Sea and Lake Victoria.
Additional debt burden to come this year
New loans from the World Bank, approved in December, are expected to reach the CBE soon, according to the central bank governor, who said earlier this month that the first segment of the World Bank’s loan is valued at $1bn.
Over December 2015, Egypt acquired the approval of the World Bank and the AfDB on two loans, valued at $4.5bn – with $3bn to come from the World Bank and $1.5bn to from AfDB – and are expected to be dispersed over three years.
The loan aims to support foreign reserves at the CBE. “These funds come in the form of soft loans at an interest rate of 1.68% with a grace period of five years,” said Minister of International Cooperation Sahar Nasr, who was a former economist at the World Bank. “The repayment period is 35 years.”
The move came after the World Bank’s approval to raise Egypt’s portfolio from $5.5bn to $6bn in November, increasing the bank’s commitment to support a number of projects in the country.
Additionally, spokesperson of the cabinet said on 10 January that Egypt will receive a grant from China over the next few days, amounting to approximately CNY 200m ($31.5m).
The grant will be used to establish a centre to assemble and examine satellites, study, and implement a project to combat desertification. Other projects are also being studied to be included in the grant.
The announcement came while stating the Kuwait Fund for Arab Economic Development (KFAED) agreed to loan Egypt approximately KWD 30m ($98.7m) to fund the electricity linkage project between Egypt and Saudi Arabia.
KFAED was said to transfer the loan in the next few days and all the arrangements between the Egyptian and Kuwaiti parties have been finalised, according to sources.
Egypt also still needs funds for financing its development projects. Nasr told the World Bank in an earlier meeting that the ministry aims to fund national projects, with the 1.5m acres project, which aims to reclaim 1.5m acres in Egypt’s Western Desert, covering land lots in the Minya and Qena governorates. The project will also include agricultural urban communities as well as agricultural industrialisation zones.
Nasr also announced this month that she has met with six Arab financial institutions to broach the subject of financing the estimated $1.5bn in development works in the Sinai Peninsula. For that aim, the minister travelled to the UAE, Saudi Arabia and Kuwait in December where she met officials from the Kuwait Fund for Arab Economic Development (KFAED), Khalifa Fund, Abu Dhabi Fund for Development, the Public Investment Fund (PIF) and the Egyptian-Saudi Coordination Council.