Egypt faces an increasingly difficult task to raise the liquidity needed to pay its foreign debt bill after external borrowing has quadrupled in the past eight years to help finance the construction of a new capital, build infrastructure, buy weapons and support an overvalued currency.

Few mega projects in Egypt generate additional hard currency inflows, while foreign investors have exacerbated troubles by turning away from Egypt and other emerging markets since the Russian war on Ukraine erupted and rising global borrowing costs.

The government says it will meet its repayment obligations, but has not implemented the structural economic changes it has long pledged, and its attempt to raise liquidity by selling state-owned companies has not resulted in the sale of any major assets in hard currency for nearly a year.

Investors have long urged the currency to be more flexible, but the Egyptian pound has not moved against the dollar for three months despite a pledge by the IMF to free it as part of a $3 billion financial package agreed in December.

Investors have long urged the currency to be more flexible, but the Egyptian pound has not moved against the dollar in 3 months

Scarcity of hard currency

Amid a shortage of foreign exchange, Egypt has withdrawn more than $40 billion from net foreign assets in the banking system in the past two years, part of which has been used to prop up the pound.

Two of Egypt's main sources of foreign exchange have seen an increase, tourism and Suez Canal transit fees, but bankers say remittances from Egyptians working abroad — a third important source of foreign currency — have fallen as more people transfer their money through the parallel market.

The dollar is about 31 pounds at the official rate, but the price on the black market is about 39 pounds.

The shortage of hard currency has raised concerns about Egypt's ability to repay its external debt, and since April the three major credit rating agencies have downgraded the outlook for Egypt's debt.

Ratings agency Moody's said Egypt's "maturities of Egypt's large external debt are becoming increasingly challenging."

Central bank data last week showed the outstanding payments included $2.49 billion in short-term debt in June, while in the second half of 2023 it included $3.86 billion in short-term debt and $11.38 billion of long-term debt.


Borrowing spree

Egypt's appetite for borrowing began with an economic conference in March 2015, less than a year after President Abdel Fattah al-Sisi took office when a series of mega projects were announced, including the new administrative capital and three power plants.

Reassurance from two agreements with the IMF in 2016 and 2020 also attracted multilateral lenders, foreign governments and institutional investors, while Egypt, which hosted the COP27 climate summit last year, benefited from the wave of green finance.

Central bank data showed that external loans jumped to $162.9 billion by December 2022 from less than $40 billion in 2015, and borrowing in the fourth quarter of 2022 alone jumped $8 billion.

Farouk Sousse, an economist at Goldman Sachs, was quoted by Reuters as saying: "Egypt has won the admiration of the IMF and investors for what it has been doing to stabilize the macroeconomy."

"The investments did not achieve the desired return in terms of enhancing the ability to repay external debt," he added.


Economists say Egypt, a country of 105 million people, one of the world's largest wheat importers and also relies on imports for other food commodities and fuel, has spent a lot of borrowed money on projects that will not yield the country's quick returns in foreign exchange.

Projects include:

  • The new administrative capital, which will cost $ 58 billion east of Cairo.
  • A $25 billion nuclear power plant on the Mediterranean coast.
  • The construction of a two-thousand-kilometer high-speed rail network will be the sixth largest in the world, and the Egyptian presidency said it would cost $ 23 billion.

From 2015 to 2019, Egypt became the world's third-largest arms importer, contracting at least 54 arms orders, according to the Stockholm International Peace Research Institute.