Egypt's debt strategy: What the first round missed and what comes next

Egypt is preparing to unveil a new version of its medium-term public debt management strategy, part of a continuing effort to rein in a debt burden that has mounted steadily since the launch of the first version of the strategy in 2020.

The finance ministry discloses only limited data on public debt, but the indicators it does publish suggest that the government fell short of the targets set under the earlier framework, which expired in June 2024.

The question now is whether the new strategy will mark a substantive shift in policy execution, or whether it risks repeating the pattern of ambitious objectives that prove difficult to deliver in practice.

What happened over five years?

Debt management strategies usually focus on reducing the debt-to-GDP ratio in order to ease the strain debt places on the economy, especially since, once this ratio exceeds 90%, as happened in Egypt in 2019 and 2023, it tends to weigh on economic growth.

In this context, the 2020 strategy aimed to bring public debt down to about 80% of GDP by June 2024. But Finance Ministry data shows that the public debt ratio continued to rise, peaking in 2023, and it did not meet the target in either 2024 or 2025.

Maye Kabil, who heads the external debt portfolio at the Egyptian Initiative for Personal Rights, said the published figures understate the extent to which the government has missed its debt-reduction targets. The headline debt-to-GDP ratio, she noted, omits sizeable public liabilities that fall outside the formal budget — including the debts of economic authorities, state-owned enterprises and government-guaranteed loans; masking the full scale of the burden.

Public debt has also weighed heavily on the state budget. Debt repayment installments and interest absorbed 51.4% of total government spending in the 2020-2021 fiscal year, before this share rose to 64.8% of total government spending in the current fiscal year. “Can that really be considered a success in managing public debt?” Kabil said.

Economist Rasha Helwa, by contrast, is inclined to give the government some leeway for missing the strategy’s targets, arguing that external shocks fundamentally reshaped its trajectory.

Helwa, a senior fellow at the Atlantic Council in USA, told Al Manassa via email that the 2020–24 period was marked by aggressive monetary tightening by the US Federal Reserve, which pushed up global borrowing costs, as well as surging commodity prices and heightened geopolitical risk across the Middle East.

Together, she said, these factors “significantly increased the burden of servicing Egypt’s public debt.”

Helwa also notes that this period witnessed successive devaluations of the pound that increased the value of the foreign-currency component of public debt, as well as the shock of the sudden exit of foreign investors from local public debt. “Relying on non-resident holdings of domestic debt made the economy extremely sensitive to swings in global risk sentiment, which led to outflows and additional pressure on reserves and the exchange rate,” she said.

Kabil, however, points out that the government benefited from exceptional support during the strategy period, which should have been reflected in better debt indicators.

“Egypt’s external debt rose from $123.5 billion before the strategy was implemented to $168 billion six months before it ended. It only fell after the Ras El-Hekma deal to $153 billion, before climbing again to $161.2 billion dollars in June, once the impact of the deal faded,” she told Al Manassa.

The two experts agree that the first strategy also fell short on the target for extending the average maturity of the debt portfolio. “The longer the government can extend the average term of its debt, the lower the annual repayment burden,” Helwa said. While the strategy aimed for an average maturity of between four and a half and five years, the actual figure was just 3.46 years.

Ambitions and a plan to rein in public spending

A Finance Ministry official who has seen the new strategy said it aims for a clearly downward path for the public debt-to-GDP ratio, to reach 77% by the end of the next fiscal year, which ends in June 2027.

The new strategy also seeks to push the average maturity of public debt up to the five-year level that the first strategy failed to reach, while reducing borrowing costs and strengthening the state’s capacity to borrow in international markets, the official told Al Manassa, requesting anonymity.

Yet the plan to issue public debt instruments (treasury bills, bonds, and sukuk) during the last quarter of the current calendar year, described as the largest quarterly borrowing plan ever, underlines the continued dominance of short-term debt, which in turn intensifies repayment pressures.

The official outlined the main tools the Finance Ministry will rely on to ease the debt burden in the new strategy: “Directing a minimum of 50% of the proceeds from state-asset offerings to debt repayment, rationalizing public spending, and raising tax revenues through structural reforms without imposing new taxes.”

Finance Minister Ahmed Kouchouk said in remarks to Al Manassa last month that half the proceeds of the government’s sale of the Alam Al-Roum land to Qatar will be used to ease the burden of public debt.

The official added that “the new strategy anticipates a rise in the public debt service bill, and the government has put in place several measures to deal with this, including maintaining a ceiling for public investment at 1 trillion pounds (about $20 billion), cutting budget-funded investment by 15%, restraining growth in the wage bill, and curbing inflation in order to reduce the cost of domestic financing.”

What needs to be done?

Kabil does not expect the government’s current policy trajectory to rein in debt unless there are deeper changes in borrowing policies.

“Despite the government’s statements about its intention to reduce debt, as set out in the budget statement presented to the House of Representatives, the 2025–2026 budget is built on a 186% increase in external borrowing compared to the previous year, with planned external borrowing of about $8 billion,” she said.

According to the budget statement for the current year, the government managed to increase the primary surplus from 164.3 billion pounds (about $3.3 billion ) in 2022/2023 to 597.2 billion pounds (about $11.9 billion) in 2024/2025, and it is targeting a primary surplus of 807 billion pounds (about $16.1 billion) this year.

Kabil argues that delivering stronger results under the new debt strategy will require, above all, a credible plan to reduce reliance on borrowing as a primary source of financing. That, she says, hinges on a concerted push to expand productive and service sectors that generate income and added value. It must also be accompanied by a fairer and more efficient tax regime, as well as tighter limits on external borrowing — restricted to “strictly necessary” purposes to be defined with parliamentary involvement.

Banking expert Hani Abou El-Fotouh, chair of Alraya Consulting, takes a more sanguine view, contending that the government notched up “decent successes” under the previous strategy and should now focus on maintaining momentum.

“The cornerstone here is sustaining high primary surpluses,” he said. “Over the past two years this has proven capable of reducing the debt burden by about 10 per cent of GDP, especially after directing the proceeds from privatisations and investment partnerships to pay down debt or replace higher-cost debt.”

Abou El-Fotouh also points to new policy tools that he believes bode well for better outcomes in the future. “Setting a legal ceiling for net public debt at 16.48 trillion pounds (about $330 billion) is an important step, because for the first time the debt path is being constrained by a clear legislative framework, while the government continues to target a decline in the debt-to-GDP ratio to around 80% within two years,” he said.

For the first time, the government set a ceiling for public debt in the 2024/2025 budget. Under the ceiling, the state may not exceed the specified borrowing levels without special authorization from the president.

“In short, what we are seeing today is a mix of genuine structural reform steps and a continued reliance on high-yield, short-term inflows and exceptional investment deals. The sustainability of this path will not hinge on legislation or financial restructuring alone, but on the economy’s ability to generate real growth driven by productive investment and exports, which would allow a gradual reduction in dependence on costly borrowing,” Abou El-Fotouh told Al Manassa.

Helwa, for her part, stresses the importance of deepening Egypt’s domestic public debt market so it relies more heavily on financial investors at home rather than foreign investors, in order to avoid the risk of sudden outflows of so-called hot money.

According to the Central Bank, foreign investors account for about 43% of total investments in treasury bills. Helwa therefore calls for encouraging a range of domestic institutions to invest in public debt, such as pension funds, insurance companies and local asset managers.

Now, as policymakers prepare to launch the new strategy, the debate among experts underscores both the scale of the challenge and the breadth of views on how to navigate it. Whether the government chooses to double down on fiscal consolidation or pursue deeper structural reforms, its ability to restore confidence will hinge on transparent execution — and on demonstrating that this time, the path to lower debt is not only credible on paper but sustainable in practice.