Egypt Repays Debt with More Debt: An Economy Living on the Next Bill

Egypt’s government faces one of the heaviest debt-repayment years in its contemporary history. Domestic and external maturities are accumulating, putting enormous pressure on state resources and forcing a difficult balance between repayment capacity and social stability. With debt service consuming around half of public expenditure and external obligations reaching tens of billions of dollars annually, the government is pursuing several strategies: extending maturities, returning to international debt markets, selling strategic assets and proposing debt swaps or exchanges of liabilities for state-owned assets.

These efforts accompany official promises of a substantial reduction in public debt and better financial indicators. Central Bank data and independent experts’ assessments, however, reveal a more complicated reality, combining liquidity shortages, a structural expansion of debt and historically high servicing costs.

Despite increasingly frequent official statements that reducing public debt is a priority, the government has been late in announcing a comprehensive debt-management strategy. Statements conflict and initiatives circulate without a clear institutional framework. At the time of this report, no complete official document had been published setting out the debt-reduction path, its instruments and timetable. Officials alternately insist that assets will not be sold, promote divestment from public companies and discuss debt swaps, without explaining the fundamental distinctions or limits of each approach.

Observers say this contradiction reflects more than a range of instruments: it exposes the absence of a coherent economic account of debt management. Markets and the public consequently struggle to assess the state’s real fiscal risks. Delaying the strategy raises the cost of uncertainty, both for investor confidence and for public debate about the social and sovereign implications of debt-reduction choices.

Does the government have a debt-reduction path?

In recent months, government statements about a “clear path” to reducing public debt have intensified, without disclosing its precise details or political and economic consequences. Prime Minister Mostafa Madbouly has repeatedly said the state is working on a radical reduction in debt and stronger debt indicators. He calls this a strategic priority managed within an integrated vision, although that vision had yet to be presented to the public or parliament as a complete official document.

Finance Minister Ahmed Kouchouk has offered more numerical detail. He has discussed a forthcoming national debt-management strategy aimed at structurally reducing debt relative to GDP, diversifying financing sources and gradually shifting from expensive commercial borrowing to long-term concessional finance, in line with Egypt’s IMF commitments.

The Finance Ministry’s projected path reduces budget-sector debt from 84% of GDP in 2024/2025 to 80% in 2025/2026, 76% in 2026/2027 and 72% in 2027/2028, then 70% in 2028/2029 and 68% by 2029/2030. The plan relies on maintaining a high primary surplus and strong real growth. Those assumptions depend on a favorable economic environment enduring despite domestic and international volatility.

For external debt, the government aims to reduce the budget sector’s debt stock by $1–2 billion annually and cap new international issuance at the value of annual maturities, theoretically limiting net new borrowing. Observers note that this approach emphasizes managing debt more than actually shrinking it, particularly while international markets remain a source of finance for funding gaps.

During 2024–2025, Egypt returned to international issuance after a three-year absence through Eurobonds and sukuk. The government described strong investor demand and lower financing costs relative to emerging-market averages. It cited an Egyptian securities risk indicator falling to 271 points from 1,858 in December 2024 and a roughly 278-basis-point decline in the international bond yield curve as evidence of improving market sentiment, despite fragile social indicators and domestic inflation pressures.

According to the plan, the Finance Ministry seeks to raise concessional external financing from new sources to 60% of annual financing, while reducing reliance on expensive commercial borrowing. It also intends to allocate at least 50% of proceeds from state-asset divestment and other exceptional receipts to debt reduction. Asset sales are again being used to relieve pressure rather than provide a structural solution.

Domestically, the strategy aims to extend average debt maturity from 3.5 years in 2024/2025 to 4.5–5 years over the medium term. It proposes new instruments including domestic sukuk, retail bonds and floating-rate bonds, alongside buybacks and swaps. The government promotes these measures as a way to reduce refinancing risk, although domestic debt remains concentrated in the banking sector.

The government says the debt-to-GDP ratio declined by around 12% over the past two years. Standard & Poor’s upgraded Egypt’s credit rating in October 2025, its first upgrade in seven years. Nevertheless, servicing costs remain the most acute challenge. Figures cited in the report put debt service at roughly 50% of public expenditure and 72% of revenue in 2024/2025, among the highest shares in comparable countries.

Tarek El-Refai, chief executive of Corum Center for Strategic Studies, which specializes in monetary-policy analysis and evaluation, considers Egypt’s recently announced debt measures practical on paper. Their realism, he says, depends heavily on execution and external conditions.

He tells Zawia3 that the core strategy revolves around asset sales, privatization, attracting Gulf capital and maintaining IMF support. “In principle, reducing the state’s role, improving dollar flows and extending debt maturities are sensible policy steps. Egypt’s public sector is large and inefficient, so disposing of some assets and involving the private sector are long overdue.”

The problem, in his view, is scale and timing. Asset sales may provide temporary relief, but cannot sustainably resolve a structural debt burden driven by persistent fiscal deficits, high interest costs and repeated devaluations. Many sales also take place under pressure, weakening pricing power and limiting long-term economic benefits.

High domestic interest rates intended to defend the currency and curb inflation worsen debt dynamics by increasing interest payments, El-Refai says. Meanwhile, growth remains constrained by import dependence, weak exports and policy uncertainty.

“Egypt’s plan is not illogical, but it is incomplete,” he says. “Without deeper reforms to strengthen productivity, exports and private investment, these measures risk buying time rather than addressing the underlying problem.”

Debt swaps: temporary relief?

In recent years, especially 2025, the government has pursued debt swaps with international partners as a less politically and financially costly alternative to immediate cash repayment. Prominent moves included arrangements with the European Union to convert some external debt into financing for water management, renewable energy and climate-adaptation projects. This can ease servicing costs and redirect resources to development sectors without addressing the debt burden’s underlying structure.

This policy included a €100 million agreement with Germany in August 2025, alongside earlier arrangements involving Italy and the United Arab Emirates, including part of the Ras El-Hekma transaction. A memorandum of understanding with China opened the door to future arrangements. Official estimates cited in the report put debt swaps implemented since the 1990s at around $1 billion: a limited amount relative to total debt, but an increasingly prominent instrument under present financing pressures.

With additional expansion discussed for 2026, official bodies have presented swaps as a “smart” crisis-management model, comparing Egypt with Seychelles and Belize as examples for heavily indebted economies. Such comparisons require greater transparency, especially about whether swaps are linked to public-asset sales or redefinitions of sovereign commitments. Those questions remain absent from official debate.

Madbouly has said debt-for-investment swaps would be a principal driver of reducing external debt relative to GDP to 40% by 2026. He said Egypt had become a net external-debt repayer by approximately $3.4 billion within one year, although accumulated obligations kept the overall stock high, and had converted $11 billion of existing liabilities into long-term direct investment.

Debt-for-investment swaps convert existing financial obligations into direct investments, often in development projects or priority sectors. Governments or companies negotiate with creditors—foreign governments or international financial institutions—to restructure debt rather than repay it in cash, reducing servicing burdens and turning liabilities into investment opportunities.

Ahmed Aboud, an economics professor at the University of Portsmouth in the United Kingdom, says this can reduce external debt and open new investment opportunities in Egypt. State liabilities to creditors are replaced by projects those countries own in Egypt: funds are invested in projects rather than repaid as debt principal or interest.

“In other words, debt is converted into assets or investments owned by creditor countries,” Aboud tells Zawia3. “That directly reduces Egypt’s debt while expanding the investment base.”

He warns that success depends on Egypt being an attractive investment destination. Some creditors may reject swaps in favor of cash repayment or traditional returns. “Egypt needs to offer a strong incentive package, good returns or attractive investment projects for creditor countries to accept a transition from cash debt to actual investments.”

Aboud describes a two-sided trade-off. “The positive side is reducing debt and creating new investments inside Egypt. The negative side is the state losing some control over domestic investment and future returns, which will partly accrue to creditor countries.”

An alternative, he says, is directly developing new projects to attract foreign currency and external investment and increase reserves, rather than relinquishing those opportunities to reduce existing debts. “Swaps have value, but require careful management to be a strategic step rather than merely a short-term solution.”

Alongside official statements, a non-government proposal known as the “grand swap” has circulated. Businessman Hassan Heikal proposed canceling part of public debt by transferring income-generating sovereign assets, including Suez Canal Authority assets and some public companies and authorities, to the Central Bank. These assets would serve as collateral for debt restructuring or securitization, or for obtaining better financing terms. Local media promoted the proposal and some commentators called it innovative, although it remained outside any official state framework.

Observers say the revival of swaps and asset securitization does not necessarily signal a policy shift. Instead, it reveals an information vacuum caused by the delayed debt strategy and the absence of public discussion or parliamentary scrutiny. This has encouraged competing accounts of crisis management and revived proposals previously abandoned under public pressure over economic sovereignty, Central Bank independence and the risk of passing the cost of short-term solutions to future generations.

The IMF and debt swaps: behind the scenes

Egyptian government sources reported that the Finance Ministry received authorization to open expanded negotiations with foreign creditors to convert outstanding debt into investments, following cabinet approval. This came days after the IMF mission left Cairo as part of the loan program’s fifth and sixth reviews.

A source quoted by Enterprise said the authorization allowed the finance and planning ministries to contact creditors directly, including through the Paris Club, to turn debt into long-term equity stakes in development projects.

A second government source said the intensified activity addressed IMF concerns. According to that source, the Fund privately expressed dissatisfaction with Egypt’s debt indicators, despite government optimism about passing the fifth and sixth reviews.

The source said the Fund’s main warning concerned insufficient fiscal flexibility, which threatened the state’s capacity to absorb future economic shocks and finance social development. This required urgent swaps and new liquidity sources, giving creditors ownership stakes in state projects in exchange for debt. The source estimated interest payments would consume about 80% of state revenue in 2025/2026, the fiscal year beginning in July 2025 and ending in June 2026.

The heavy cost of debt service

Estimates cited in the Arabic report put external debt service due in 2026 at approximately $29.18 billion, covering principal and interest: $23.79 billion in principal and around $5.4 billion in interest. The independently rounded components total $29.19 billion. These figures illustrate the scale of financing needs, but should not be confused with every debt-service schedule or maturity definition.

The report also cites a government estimate that total public debt reached EGP 14.9 trillion—roughly $313 billion—at the end of June 2025, more than 15% above the previous year, including EGP 3.8 trillion in external budget-sector debt. Other figures put economy-wide external debt above $161 billion at mid-2025; the two external-debt figures have different institutional coverage.

Karim El-Omda, a professor of political economy, says Egypt’s external-debt crisis cannot be solved quickly. Quick fixes are unrealistic, he argues: the crisis is difficult, complex and multifaceted. Current proposals are not new; variants have repeatedly circulated over the years without addressing the underlying problem.

He notes that Egypt’s debt-for-investment swaps began with Italy in 2003 and later Germany in 2010–2011, but have remained limited. “Expanding swaps would be positive because they allow the state to convert part of its obligations into long-term investments instead of immediate cash repayments.” He also refers to Ras El-Hekma, describing roughly $10 billion of obligations as deducted within a $35 billion transaction, and to Qatar and Kuwait converting debts into assets and property. His approximate $10 billion figure differs from the $11 billion conversion cited by the prime minister earlier in this report.

El-Omda nevertheless expects the crisis to persist. He says weaknesses in the government’s economic capabilities and difficulties making rapid decisions complicate the situation, while parliament has not provided the support required for effective management.

The conventional tools are clear: reduce the budget deficit, increase investment and maximize foreign-currency revenue. Egyptians abroad have played a decisive role in protecting the economy, he says, estimating remittances at around $40 billion during 2025. “Increasing Egyptians’ domestic investment or remittances can provide substantial liquidity and ease the state’s debt burden.” His calendar-year estimate is distinct from the Central Bank’s fiscal-year remittance series.

El-Omda expects gradual improvement over the following two years. “The situation is more stable than before, and we expect 2026 to be much better, with a possible decline in the dollar and inflation. But challenges remain, particularly with a new government approaching, and we hope it has the competence to manage the economy effectively.”

The Central Bank’s External Position of the Egyptian Economy, Volume 90, provides a detailed account of external obligations. It records total external debt of approximately $161.2 billion at the end of June 2025, up $8.3 billion from a year earlier, despite repeated efforts to reduce reliance on external borrowing.

By original maturity, long-term debt represented 80.8% of the total, or $130.3 billion, while short-term debt represented 19.2%, or $30.9 billion. By remaining maturity—the time left until repayment—short-term obligations were $54.6 billion, or 33.8%, and longer-term obligations $106.7 billion, or 66.2%. These are alternative classifications of the same stock, not four categories to add together. A long-term original loan falling due within one year enters the short-term remaining-maturity measure.

The Arabic report puts multilateral-institution debt at $47.2 billion, or 29.3% of external debt, including $14.2 billion associated with the IMF. Volume 90 instead lists $44.8 billion for multilateral institutions’ long-term debt in its detailed breakdown. The difference in coverage is not reconciled in the source article, so these figures should not be treated as identical measures. Egypt’s creditor composition makes its finances sensitive to international institutions’ policies, an important consideration for debt-management strategies.

The Arabic report also gives $34.9 billion in medium- and long-term obligations for 2026, splitting this into $15.7 billion in the first half ($12.8 billion principal and $2.9 billion interest) and $19.2 billion in the second half ($11 billion principal and $2.4 billion interest). Those figures are internally inconsistent: the second-half components add to $13.4 billion, not $19.2 billion. Volume 90’s Table 11, using the July 1, 2025 schedule for medium- and long-term public and publicly guaranteed debt, instead projects $18.158 billion in the first half and $14.182 billion in the second, approximately $32.34 billion combined. It is a defined subset and schedule, not a substitute estimate of all external repayments. The article identifies Eurobonds, dollar sukuk and Gulf deposits among major maturities, quoting $1.4 billion each for bonds and sukuk and $7.3 billion for Gulf and Saudi deposits.

The Central Bank report measures the external burden through debt service relative to exports and current receipts: 53.6% and 34.5% respectively in 2024/2025. These ratios show how heavily repayment obligations weigh on foreign-currency resources and the fragility associated with volatile external inflows.

Rising debt and policies that recycle it

A recent Egyptian Initiative for Personal Rights report, whose Arabic title translates as “Will Egypt Escape the Sea of Sand?”, describes external debt rising to around $161.2 billion at the end of June 2025. The Arabic article gives an approximately $155 billion comparison a year earlier, although the Central Bank’s same-date June 2024 total was $152.9 billion. The comparable Central Bank series therefore shows an $8.3 billion annual rise. The EIPR analysis views continued borrowing despite austerity and currency flotation as evidence of policies failing to contain indebtedness.

According to the analysis, debt growth is inseparable from the sharp increase in servicing burdens. Principal and interest consume tens of billions of dollars annually, directly pressuring foreign-currency resources. A substantial share of reserves is used to meet short- and medium-term obligations, reducing the financial safety margin and leaving the economy more exposed to external shocks.

The report argues that rather than reduce reliance on loans, the government has recycled debt: borrowing anew to repay old obligations. This produces a structural expansion of external debt without a corresponding expansion in foreign-currency-generating sectors such as export industry, agriculture or high-value-added tourism.

It describes international financial institutions—including the IMF, World Bank and African Development Bank—as an increasing share of creditors, alongside bilateral loans from Arab countries. This composition constrains policy choices, because loans are tied to reform and restructuring programs that directly affect prices, subsidies and the exchange rate.

The analysis says attempts to escape the crisis have focused on managing it incrementally through asset sales, greater reliance on short-term investment and new financing agreements rather than reducing debt. These policies postpone a rupture rather than address its roots. They may temporarily improve indicators, but leave debt at levels difficult to service over the medium term.

Its conclusion is that high external debt, currency depreciation and inflation transfer the cost of the crisis from the state to citizens through eroding incomes, higher prices and reduced social spending. Without a fundamental change in borrowing policies, debt could become a permanent constraint on the economy and financial sovereignty rather than an instrument of financing.