Egypt unveils ambitious plan to reduce sovereign debts
Cairo – The Egyptian government says it has drawn up a plan to remarkably reduce its debts by the year 2022.
The plan, it adds, will seek to bring the sovereign debts down to 80% of the gross domestic product (GDP) by 2022, from 93% now.
“Reducing the debt to GDP ratio will contribute to reducing debt services,” Deputy Finance Minister for Fiscal Policies Ahmed Kouchouk said. “It will also open the door for the presence of enough funds to use in bankrolling economic activities.”
The government debts started snowballing soon after the 2011 uprising that ended the rule of autocrat Hosni Mubarak.
Most of the populous country’s economic activities came to a screeching halt because of rampant turmoil and its deteriorating security conditions in the aftermath of the uprising.
The tourism sector was deeply affected by this unrest, the exports fell down and a huge number of factories closed down either because of these security conditions or because of a decline in the national purchasing power.
The foreign debts were $93 billion in September 2018 and the local debts $210 billion, both amounting to 97% of the overall GDP.
However, the debt to GDP ratio has been spiraling down for a number of years now, according to the Ministry of Finance.
The ratio was 108% in June 2017, 3% up from the same ratio a year earlier. Nonetheless, it became 97% in 2018 and the Finance Ministry wants to bring it down to 88% next year and to 80% in 2022.
Finance Minister Mohamed Mo’eit said the drop in the debt to GDP ratio was caused in 2018 by the presence of a budget surplus of $224 million, an unprecedented occurrence in the past decade and a half.
He added that the economy also grew in that year by 5.2%.
The minister noted in a February 3 statement that his ministry hopes to maintain the drop in the ratio by achieving a 2% budget surplus in 2022.
“We also want the economy to grow by an initial 6% in the same year,” he said.
Egypt has initiated aggressive reforms to restructure the economy, reduce the budget deficit and attract foreign investments.
The reforms have so far included the liberalization of the Egyptian pound against all foreign currencies, the slashing of a sizeable portion of fuel, electricity and water subsidies and the introduction of a value-added tax.
The same reforms have, however, proved very hard on the pockets of the poor and those in the middle class by raising the prices of commodities across the board.
To cushion effects from the reform program on the poor, the government increased food subsidies and created new social welfare schemes. It also increased funding to small projects.
Kouchouk said a drop in the debt to GDP ratio would make enough funds available for bankrolling production activities and social welfare for the poor.
“The same funds can be used in increasing government investments and improving national infrastructure,” he said.
Economists in Cairo, meanwhile, cast doubt on the ability of the government to bring the debts that dramatically down.
Bringing the debt to GDP ratio down would not be achieved so long as borrowing continues.
“This is why I say putting the brakes on borrowing must be an important component of the new plan,” said Alia al-Mahdi, an economics professor at Cairo University. “We have to depend on our own financial resources; cut down spending; increase production, and attract more investments.”
Egypt’s foreign debts, now 34% of the GDP, more than doubled in the last five years. The foreign debts were $46 billion in 2014. The domestic debts increased dramatically in the same period too.
Economists attribute the rise in the foreign and local debts to what they describe as a “borrowing craze” on the part of the government.
This is, however, a policy that is apparently changing.
The government will reduce the debt to GDP ratio by curbing borrowing, better managing resources and reducing government spending, according to Hesham Wali, a member of the Economic Affairs Committee in Egypt’s parliament, the House of Deputies.
“The success of the debt reduction plan will have positive effects on our country’s financial standing,” Wali said. “It will lead to reducing the inflation and unemployment rates by opening the door for the presence of more funds for national investments.”