The Egyptian government will only take on new loans only for “compelling developmental projects” or if they are offered on soft terms, the country’s Planning and Economic Development Minister has said.
The North African nation is now focused on cutting spending and attracting investment as part of efforts to keep inflation, which is at a six-year high, in check, Hala El Said told the senate on Monday as she presented the ministry’s plan for the coming fiscal year.
Egypt’s debt stood at $162.9 billion in December, up from $155 billion in the previous quarter, according to the latest data from its central bank.
Millions of dollars have left its once-flourishing debt market as the Covid-19 pandemic and, most recently, the war in Ukraine forced foreign investors to sell off bonds.
A rising import bill and a drop in foreign currency inflows has resulted in a number of austerity measures, including consecutive devaluations of the local currency.
The Egyptian pound has already lost nearly half its value over a little more than a year. Inflation has soared to about 30 per cent while a foreign currency crunch is depressing imports and undermining local industries dependent on materials produced abroad.
Critics have attributed the crisis to government’s measures to prop up the pound for years, when its value should have been decided by market forces, and the billions of dollars spent on big infrastructure projects.
The budget presented by Finance Minister Mohamed Maait in May revealed that borrowing would account for 49.2 per cent of Egypt’s budget resources.
Additionally, about 57 per cent of budget allocations were set aside to service debt, including principal and interest repayments.
The government revised its previous budget deficit estimate in May for the coming fiscal year – raising it to 6.9 per cent, from 6.3 per cent.
The revision was attributed by Mr Maait to the interest rate increases in Egypt and global markets, as well as the government’s social spending bill that is expected to rise by 48.8 per cent to $17.1 billion between 2023-2024 fiscal year, from $11.6 billion in the previous fiscal year.
While government spending for the next fiscal year is expected to increase by $24.4 billion to about $97 billion in 2023 to 2024, revenue is expected to rise much slower, by $20.2 billion to $68 billion.
According to a report by global investment banking group Goldman Sachs in April, cash-strapped Egypt must speed up the pace of its reforms or make more “painful adjustments” to pluck its economy out of a deepening crisis.
Ms El Said told the senate that a great deal of focus would be placed on increasing private sector participation in the economy.
In December last year, the International Monetary Fund approved a $3 billion loan under a 46-month arrangement that is part of an extended fund facility for the country.
The IMF-supported reform programme is expected to secure an additional $14 billion from Egypt’s international and regional partners, including GCC countries.
Inflation is expected to ease to about 7 per cent by the 2024-25 fiscal year, the fund said.
