Understanding Egypt’s Public Debt Dynamics
Published: 25 May 2017
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Egypt’s Public debt has been a crucial issue that has stirred strong debate, especially post the Government of Egypt’s (GoE) and International Monetary Fund (IMF) loan agreement of USD 12 bn over three fiscal years. Opponents of the deal argue that it only adds to the mounting internal and external government debt that has already reached unsustainable levels. Arguments on that front, however, do not acknowledge the tradeoff between reducing debt levels on the one hand and reducing subsidies, and limiting wage increases to the public sector, on the other. Meanwhile, proponents of the deal argue that it will help restore the much needed economic discipline by restraining unduly high growth in public sector spending, especially on public sector salaries, and imposing monetary policy adjustments, the lack thereof has led to the buildup of the current debt levels.
This note aims at shedding light on the dynamics of public sector debt, its development, and the projected trajectory in the medium term. We at Dcode EFC believe that the sizable external financing gap projected under the IMF program is consistent with Egypt’s targeted level of growth and employment generation. To achieve the latter, the GoE has to adhere to the announced reform plan in order to achieve an enabling macroeconomic environment that instills confidence, attracts foreign investors, and encourages international financial institutions to maintain their support to Egypt’s economic reform plan.