Thursday,19 October, 2017
Current issue | Issue 1302, (30 June - 13 July 2016)
Thursday,19 October, 2017
Issue 1302, (30 June - 13 July 2016)

Ahram Weekly

Curbing external debt?

Egypt’s foreign debt rose significantly in the current fiscal year, reports Nesma Nowar

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Al-Ahram Weekly

In a meeting with Minister of International Cooperation Sahar Nasr last week President Abdel-Fattah Al-Sisi said it is essential for the country not to sign further loan agreements without ensuring it has the ability to repay them.

The president’s request is only logical given the increase in Egypt’s external debt, which rose to $53.4 billion at the end of the third quarter of the current fiscal year, compared to $47.7 billion at the end of the previous quarter, increasing by 11.8 per cent, according to the Central Bank of Egypt (CBE).

In its monthly bulletin, released earlier in June, the CBE said that Egypt’s foreign debt to the Paris Club countries had risen to $3.5 billion at the end of March, compared to $2.6 billion at the end of December 2015.

The Paris Club is an informal group of creditors whose role is to find coordinated and sustainable solutions to payment difficulties experienced by debtor countries.

The bulletin also showed that debts owed to international and regional institutions had increased from $12.9 billion to $13.8 billion in the same period, and that short-term external debt had risen by $2.4 billion to $6.8 billion at the end of March, from $4.4 billion in December 2015.

Short-term debt includes all debt having an original maturity of one year or less and interest in arrears on long-term debt.

The new figures increased the country’s external debt to 16.5 per cent of GDP in March, compared to 12.3 per cent in the same month last year. The report ascribed the hike in foreign debt in the current fiscal year to an increase in the use of loans and financial facilities and a rise in the exchange rate of currencies used in borrowing against the US dollar. 

Despite the surge, the CBE said on Monday that it could secure some $10 billion from the International Monetary Fund (IMF) by agreeing to a structural reform programme set out by the IMF, but that it has yet to make any formal request to do so. It said it was in constant contact with the IMF and could secure the sum should it opt to apply.

The statement came in reply to a Reuters report citing one of Egypt’s economy ministers as saying that that there are ongoing negotiations led by the CBE to acquire over $5 billion in loans from the IMF.

Egypt would do better to go for domestic borrowing instead of loans from abroad, according to Farag Abdel-Fattah, a professor of economics at Cairo University. “In securing loans from abroad the country will have to comply with international creditors, so it is better for the borrowing to be a domestic matter,” Abdel-Fattah told Al-Ahram Weekly.

He added that Egypt’s external debt to GDP ratio is “reasonable,” but said that no loans should be signed before ensuring the ability to repay them. Many loan agreements had been signed recently, but they were all needed and “for a reason,” he said.

Nasr said the ministry does not negotiate loans until it has received the approval of the presidency. She adding that during her meeting with the president he stressed the need to analyse the economic impact of any loans.

She said that a unit to analyse the economic and financial impact of projects set up under loan agreements has been established in the ministry, and that the intended projects were also being presented to parliament to confirm the need to execute them.

Nasr further stressed the fact that Egypt has never defaulted on its external debts, even during the harsh economic times that followed the 25 January Revolution. Abdel-Fattah reiterated the same point, saying that Egypt has always had a good reputation when it comes to repaying its foreign debt.

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