LATEST TWEET:
RT @BankTrack: BankTrack has signed an open letter calling on the #IMF to ensure banks not people take the hit over secret loans to Mozambi…
Mozambique's debt crisis deepens as it defaults on a $119 million payment on a loan arranged by Credit Suisse Group: https://t.co/4RVeOvTHco
Mozambican campaigners demand cancellation of secret debt before the IMF lends again https://t.co/59LuKDcdNr
World Bank's Jim Yong Kim says the days of African debt crises over. Meanwhile,Ghana and Mozambique in debt crisis.. https://t.co/YEGf4nf9Lz
France passes law to clip vulture funds’ wings https://t.co/9KgSE1JWjR
Join the movement

Egypt

Debt statistics 2015

Overall international debt burden (% of GDP)32
Government payments on foreign debt (% of revenue)5.3
Government foreign debt (% of GDP)8
Private foreign debt (% of GDP)5
IMF and World Bank debt cancellation ($ billions)0
Country case studiesYes

Country case study

The Egyptian government took on a large debt through lending from Arab states and then western nations to support their regional ally through the 1970s and 1980s, particularly for military equipment. In the 1980s the country’s huge debt payments helped lead to economic stagnation. Some debt was cancelled by the western world in 1991 in return for the country’s support during the Iraq war. But $30 billion of debt remained. Whilst inflation and economic growth made this relatively less through the final decade of Mubarak’s rule, extreme poverty and hunger increased in the country. Since Mubarak was overthrown during the revolution, the Egyptian people have inherited $30 billion of debt from his regime. The Popular Campaign to Drop Egypt’s Debt are calling for an end to payments on Mubarak’s debt, and a debt audit to find out what the loans which created the debt were used for.

Like many countries, Egypt was lent large amounts in the mid-to-late 1970s. The government’s external debt increased from 14 per cent of national income in 1973 to 60 per cent by 1978.[1] During this time Egypt was in conflict with the state of Israel, which had invaded the Sinai peninsula in 1967. Much of the lending was from Arab states with large amounts of dollars from high oil prices, including to fund the military[2] due to Egypt’s role as a frontline state against Israel. Loans also came from the Western world, primarily the United States, which provided $1.3 billion of loans and grants in 1977 alone.[3]

In 1979 Egypt signed a peace agreement with Israel, for which it regained full control of Sinai. Arab states withdrew their extensive financial support in opposition to the treaty. To help keep the country’s economy going, the western world disbursed more in loans.

The UK government kept increasing the amount of loans it would back for Egypt to buy British exports. In May 1980 Lord Strathcona told Nigel Lawson, then Financial Secretary to the Treasury, “though there is some doubt as to whether the Egyptian economy is yet strong enough to justify a large increase in cover [ie, loans], there is also a strong feeling that we should, in the national interest, give these BAe proposals [for Hawk aircraft and Rapier missiles] favourable consideration”.[4] The UK’s Export Credits Guarantee Department backed £85.7 million of loans for the Egyptian armed forces to buy the rapier missile system.[5] The aircraft deal was lost to France, who lent the money for the Egyptian military to buy 20 Mirage military aircraft.

By 1984, the Egyptian government’s foreign debt was over 80 per cent of GDP, and total debt payments from the whole economy were a gigantic 35 per cent of export revenues.[6] This burden was becoming unpayable, and Egypt began defaulting on some its payments. But the debt kept growing, and by 1986 government foreign debt payments reached 50 per cent of export revenues.[7]

Mubarak’s government reached an agreement with Western governments to reschedule when repayments would come due on $7.1 billion of debt.[8] But by now the economy had stagnated under the weight of debt payments, and the debt continued growing to over 100 per cent of national income in 1988.

In 1990 and 1991, the Mubarak regime supported the war on Iraq. In return, the US and allies announced they would cancel $20 billion of the country’s debt.[9] However, the total debt owed only fell by around $10 billion, from $37 billion in 1989 to $28 billion in 1992.[10] Much of the difference was probably due to the US counting cancelled interest payments as cancelled debt.

Since the early 1990s, the absolute size of the debt has stayed around $30 billion. Inflation and economic growth have gradually reduced the relative size of the external debt, from 65 per cent of national income in 1992 to 15 per cent by 2010. Between 1993 and 2010, the Egyptian government has been lent $23 billion and repaid $38 billion, yet the total amount owed has increased slightly from $28 billion to $32 billion in 2010.[11]

Between 2000 and 2010, the Egyptian economy per person has grown by one-third. But the number of people living in extreme poverty, on less than $1 a day, has increased slightly from 1.2 million in 2000 to 1.3 million in 2008. 12 million people (15 per cent of the population) lived on less than $2 a day in 2008 (the latest year with figures available), down from 13 million (19 per cent of the population) in 2000.

Even whilst debt payments fell through the later Mubarak years, the proportion of national income spent on public health and education also fell; from 7.3 per cent in 2003 to 5.8 per cent by 2008. The proportion of people not getting enough to eat has remained at 5 per cent, so an increase from 2.8 million to 4 million people, between 1990 and 2008.

In 2011, the Egyptian revolution led to the fall of dictator Mubarak from power. Local activists have created the Popular Campaign to Drop Egypt’s Debt, calling for a moratorium on all payments on the debt inherited from Mubarak, and an audit to find out what the loans were for which led to the debt being created.

Since the revolution began, the Egyptian government’s reserves of foreign currency have halved, as income from tourists, and foreign investment, has declined. With falling exports, the government has resorted to using reserves to meet foreign debt payments and maintain the value of the Egyptian pound (effectively using reserves to fund imports). Whilst in 2010 the Egyptian government’s foreign debt payments were a relatively small 5 per cent of government revenue, its financial position has markedly deteriorated since.

The Egyptian government currently has $31 billion of external debt. In recent years the government has been paying around $3 billion in external debt service payments each year. Payments to the Paris Club group of western countries total around $1.3 billion a year. The main creditors are Japan, Germany, France and the United States, with £100 million being owed to the UK government.

The UK government says all of Egypt’s debt to it comes from contracts prior to the default and restructuring in 1986. Then Business Minister Ed Davey said in 2011: “The debt owed to the Export Credits Guarantees Department does not include military hardware i.e. aircraft, helicopters, tanks or missiles. It includes export contracts relating to the supply of communications equipment e.g. telephone and radio sets, to the Egyptian Government for use by the armed forces.”[12]

Through 2012 the Egyptian government has been discussing taking out a loan of between $3 billion and $5 billion from the IMF. This loan would simply be used to meet payments on Mubarak’s debt as it comes due. The initial proposal was rejected following opposition by Islamic parties within parliament. However, discussions are taking place again. In August 2012 there were protests in Cairo against the loan. The loan has also been opposed by some Islamic groups, saying the interest charged is usury, and therefore against the Prophet’s teaching. Amr Adly from the Egyptian Initiative for Personal Rights said: “Many fear that a new era of dependency will start, even after the revolution. The IMF loan won’t be approved without giving concessions that completely contradict the promises of a new development model, and thus undermine the potential for social justice measures after the revolution.”


[1] Calculated from World Bank. Global development finance database.

[2] Export Guarantees Advisory Council. (1979). Egypt: Recent developments. January 1979. Document obtained from UK Government National Archives.

[3] Export Guarantees Advisory Council. (1979). Egypt: Recent developments. January 1979. Document obtained from UK Government National Archives.

[4] Ministry of State for Defence. (1980). Letter from Lord Strathcona to Nigel Lawson on Egypt and arms exports. 28/05/1980.

[5] HM Treasury. (1980). Egypt – British Aerospace air defence command – towed rapier missile system section 2 (arms account). Correspondence between Export Credits Guarantee Department and HM Treasury. 08/08/1980 and 15/08/1980.

[6] Calculated from World Bank. Global development finance database.

[7] Calculated from World Bank. Global development finance database.

[10] World Bank. Global development finance database.

[11] Calculated from World Bank. Global development finance database.

Jubilee Debt Campaign is a company limited by guarantee, number 3201959
Jubilee Debt Campaign's registered charity number is 1055675