The Egyptian government is facing the most difficult debt year in its modern history, as external and domestic obligations pile up, imposing enormous pressures on the state’s resources and placing the economy before a decisive challenge between the ability to repay and the necessity of preserving social stability. With debt service consuming about half of public spending, and external obligations exceeding tens of billions of dollars annually, the government is seeking to contain the debt burden through multiple strategies, including rescheduling maturities, returning to international debt markets, selling strategic assets, as well as proposing debt swaps or the exchange of obligations for state-owned assets.

These efforts come amid an official discourse that promises a notable reduction in public debt and an improvement in fiscal indicators, while data from the Central Bank and the reports of independent experts reveal a more complex reality, in which a shortage of liquidity overlaps with a structural inflation of indebtedness and a historic rise in the costs of debt service.

Despite the escalation of official talk about the priority of reducing public debt, the government is still late in announcing an integrated strategy for managing indebtedness, amid contradictory statements and a multiplicity of initiatives in circulation without a clear institutional reference. So far, no official document has been published setting out the path of debt reduction, its tools and its timetable. Meanwhile, the statements range between affirming that assets will not be sold, the simultaneous promotion of exiting public companies, and talk of debt swaps, without clarifying the fundamental differences between these paths or the limits of each of them.

Observers point out that this contradiction does not necessarily reflect a multiplicity of tools so much as it reveals the absence of a single economic narrative for managing debt, which weakens the ability of the markets and public opinion to assess the real risks of the state’s fiscal path. Likewise, the delay in announcing the strategy increases the cost of uncertainty, whether at the level of investor confidence or at the level of the public debate on the social and sovereign cost of the options for reducing debt.

Does the government have a path to reducing debt?

Recent months have witnessed an escalation in government statements about a “clear path” to reducing public debt, without disclosure of the precise details or of the political and economic consequences of this path. On several occasions, Prime Minister Mostafa Madbouly confined himself to affirming that the state is “working on a radical reduction in the volume of debt” and on strengthening indebtedness indicators, considering this issue a strategic priority, but one that is managed within an “integrated vision” that has not yet been presented to public opinion or to parliament as a complete official document.

For his part, Finance Minister Ahmed Kouchouk presented a more detailed discourse in terms of numerical targets, speaking of an upcoming national strategy for debt management that targets the structural reduction of its ratio to gross domestic product, the diversification of funding sources, and a gradual shift from high-cost commercial borrowing to long-term concessional financing, in line with Egypt’s commitments to the International Monetary Fund.

The Ministry of Finance is adopting a downward path for the debt of the general budget agencies, under which it aims to reduce it from 84% of gross domestic product in (2024/2025) to 80% in (2025/2026), then to 76% in (2026/2027) and 72% in (2027/2028), reaching 70% in (2028/2029), before it declines to 68% by (2029/2030). According to the plan, the achievement of these targets is attributed to maintaining a high primary surplus, alongside achieving strong real growth rates, assumptions that bet on the sustainability of a favourable economic environment, despite the domestic and international volatility surrounding it

On the external debt front, the government announces that it aims to reduce the stock of the budget agencies’ debt by about $1–2 billion annually, while setting a ceiling for new international issuances so that they do not exceed the value of the annual maturities, which means, in theory, limiting net new borrowing. However, this approach, as observers note, focuses on managing debt more than on actually reducing it, especially given the continued reliance on international debt markets to fill financing gaps.

In this context, during (2024- 2025) Egypt returned to the international issuance market for the first time in three years, by offering Eurobonds and sukuk, amid what the government described as strong demand from investors and a decline in the cost of financing compared with emerging-market averages. The government cites the fall in the investment risk index for Egyptian securities to 271 points after it had reached 1,858 points in December 2024, along with a decline in the international bond yield curve of about 278 basis points, considering this evidence of an improvement in the markets’ outlook, despite the continued fragility of social indicators and the inflationary pressures at home.

The Ministry of Finance seeks, according to the plan, to raise the share of concessional external financing from new sources to 60% of total annual financing, in parallel with reducing reliance on high-cost commercial financing. In addition, it intends to direct no less than 50% of the proceeds of exits from government assets and of any other exceptional returns to reducing debt, in a recurring bet on selling assets as a tool to ease pressures, not as a structural solution to the debt crisis.

Domestically, the strategy aims to lengthen the average life of domestic debt from 3.5 years in (2024/2025) to between 4.5 and 5 years in the medium term, by expanding new financing tools such as domestic sukuk, retail bonds and floating-rate bonds, alongside buyback and swap operations. The government promotes these measures as a means of reducing refinancing risks, despite the continued concentration of domestic debt in the banking sector.

Despite the government’s announcement of a reduction in the debt-to-GDP ratio of about 12% over the past two years, and the subsequent upgrade of the credit rating by “Standard & Poor’s” last October, for the first time in seven years, the burden of debt service remains the most acute challenge. Official data indicate that debt service accounts for about 50% of total public expenditure, and about 72% of total revenues in 2024/2025, which are among the highest ratios among peer countries.

The chief executive of the “Quorum Center for Strategic Studies”, which specialises in studying and evaluating monetary policies, Tarek El-Rifai, believes that the measures recently announced by Egypt to address its debt problem are practical on paper, but the extent of their realism depends largely on implementation and external conditions.

He explains, speaking to Zawia3, that the core strategy revolves around selling assets, privatisation, attracting Gulf capital, and ensuring the continuation of International Monetary Fund support. He says: “In principle, reducing the role of the state, improving dollar flows and extending debt maturities are wise policy steps, as the Egyptian public sector is large and inefficient, so disposing of some of its assets and private sector participation are long overdue.”

But he sees that the problem lies in scale and timing, as asset sales can provide temporary relief, but they are temporary solutions and cannot sustainably resolve the structural debt burden, which is fuelled by persistent fiscal deficits, high interest costs and repeated currency devaluations. Moreover, many of the sales take place under pressure, which weakens pricing power and limits the long-term benefits to the economy.

The economic expert says that high domestic interest rates, which aim to defend the currency and curb inflation, in turn aggravate debt dynamics by increasing interest payments. At the same time, growth remains constrained by dependence on imports, weak exports and policy uncertainty.

El-Rifai explains that “Egypt’s plan is not illogical, but it is incomplete; without deeper reforms to boost productivity, exports and private investment, these measures risk merely buying time rather than addressing the underlying problem.”

Debt swaps: will they rescue the government temporarily?

In recent years, and particularly in 2025, the government turned to activating the debt-swap mechanism with a number of international partners, as a path less costly politically and financially than direct cash repayment. The most prominent of these moves was the agreement with the European Union to convert part of the external debt into financing for projects in the fields of water management, renewable energy and adaptation to climate change, which allows the burden of debt service to be eased while redirecting resources towards sectors classified as developmental, without touching the core of the indebtedness.

This policy included an agreement with Germany worth €100 million in August 2025, alongside earlier swaps with Italy and the UAE, among them part of the “Ras El-Hekma” deal, as well as a memorandum of understanding with China that opens the door to similar arrangements in the future. According to official estimates, the total debt swaps carried out by Egypt since the 1990s amount to nearly $1 billion, a limited figure relative to the size of the overall indebtedness, but one that is gaining increasing momentum amid the current financing pressures.

With talk of additional plans to expand this mechanism during 2026, official bodies are trying to present debt swaps as a “smart” model for managing the crisis, comparing the Egyptian experience with countries such as Seychelles and Belize as models that can be replicated in debt-burdened economies. However, this approach remains conditional on a higher degree of transparency, particularly regarding the limits of linking debt swaps to the sale of public assets or to the redefinition of sovereign obligations, questions that remain absent from the official debate so far.

Prime Minister Mostafa Madbouly had stressed that swapping debt for investment will be the main driver for reducing the ratio of external debt to gross domestic product to 40% by 2026. He explained that the state had become, within a single year, “a net repayer of external debt by about $3.4 billion”, despite the overall stock remaining high as a result of earlier accumulations, and that it had also converted existing obligations worth $11 billion into long-term direct investment.

Swapping debt for investments is a strategic financial tool to which states and companies resort to convert their existing obligations into direct investments, often in development projects or priority sectors. The idea relies on negotiating with creditors, whether foreign governments or international financial institutions, to restructure the debt instead of repaying it in cash, which eases the burden of debt service and turns financial obligations into investment opportunities that support economic growth.

For his part, Dr Ahmed Abboud (professor of economics at the University of Portsmouth in London) believes that the idea of swapping debt for investments may be an effective tool for reducing external debt and opening new horizons for investment inside Egypt. He explains that the idea is based on replacing the state’s financial obligations towards creditors with investment projects owned by those countries inside Egypt, so that they invest the money in these projects instead of the debt being repaid in cash or with interest due.

Abboud tells Zawia3: “In other words, the debt is converted into assets or investments, so that the creditor countries become their owners, which directly reduces Egypt’s debt and at the same time allows the investment base to be expanded.”

But he warns that the success of this mechanism depends on Egypt’s capacity to be an attractive destination for investment, noting that some countries may refuse to swap their debts for investment, preferring to obtain cash repayment or traditional returns. He adds: “Egypt needs to offer a strong incentive package, with a good return or attractive investment projects, for the creditor countries to accept the shift from cash debt to actual investments.”

The professor of economics at the University of Portsmouth points to the double-edged nature of the swap: “The positive side lies in reducing debt and creating new investments inside Egypt, while the negative side lies in the state losing part of its control over domestic investment and future returns, which will go partly to the creditor countries.”

He explains that the alternative is to invest in new projects directly in order to attract foreign currency and external investment and to increase reserves of dollars and foreign currencies, instead of giving up these opportunities in exchange for reducing current debts. He says: “The swap has value, but it needs careful management to ensure that it is a strategic step and not merely a short-term solution.”

Alongside the official statements, the economic arena has recently seen the circulation of a non-governmental proposal known as the “Grand Swap”, put forward by businessman Hassan Heikal, which is based on zeroing out part of the public debt by transferring revenue-generating sovereign assets, such as the assets of the Suez Canal Authority and some public companies and authorities, to the Central Bank, on condition that these assets are used as collateral for restructuring or securitising the debt, or for obtaining financing on better terms. This proposal has been promoted through local media outlets and described by some commentators as “the innovative solution”, despite its being outside any official framework of the state.

Observers believe that the return of swap and asset securitisation ideas to the fore does not necessarily reflect a shift in government policies so much as it reveals an information vacuum resulting from the delay in announcing the anticipated debt strategy and from not subjecting it to public debate or parliamentary oversight. This vacuum has helped the growth of different narratives about the management of the crisis, and has brought back to the scene proposals that were aborted years ago under the pressure of public opinion, as a result of fears linked to economic sovereignty, the independence of the Central Bank, and the risks of loading future generations with the cost of short-term solutions.

The IMF and debt swaps: what lies behind the scenes

Egyptian government sources revealed that the Ministry of Finance had obtained the green light to begin expanded negotiations with foreign creditors to convert the debts owed into investments, following the approval of the Cabinet, days after the International Monetary Fund mission left Cairo as part of the fifth and sixth reviews of the loan programme.

A source explained to “Enterprise” that the mandate gives the ministries of finance and planning the authority to communicate directly with creditors, including through the Paris Club, with the aim of converting debts into long-term investment stakes in development projects.

A second government source said that the intensive activity on debt swaps comes to address the concerns of the International Monetary Fund, which expressed, behind the scenes, its dissatisfaction with Egypt’s current debt indicators, despite the government’s optimism about passing the fifth and sixth reviews.

He explained that the Fund’s main warning concerns the current lack of fiscal flexibility, which threatens the state’s ability to absorb future economic shocks and to finance social development, and calls for urgent action towards debt swaps and finding new sources of liquidity. These swaps mean that creditors obtain ownership stakes in state projects in exchange for their debts. He noted that debt interest payments eat up about 80% of state revenues in fiscal year (2025/2026), which began last July and ends next June.

The heavy burdens of debt service

The latest estimates of the Central Bank of Egypt indicate that 2026 will be one of the heaviest years of external debt service, with the state committed to paying about $29.18 billion to creditors abroad, including both principal instalments and interest. This amount is divided into $23.79 billion due as principal instalments and $5.4 billion in interest, which reflects the swelling of the debt bill and its direct impact on the financing needs of the general budget.

In contrast, an official government report reveals that total public debt reached about EGP 14.9 trillion (about $313 billion) by the end of June 2025, an increase of more than 15% compared with the previous year, of which EGP 3.8 trillion represents external debt. Other official figures indicate that external debt exceeded $161 billion in mid-2025, which confirms the continued pressure on the general budget.

For his part, Dr Karim El-Omda (professor of political economy) says that Egypt’s external debt crisis is not a problem that can be solved quickly, stressing that the quick solutions some people talk about are “unrealistic”, and noting that the crisis is “difficult, complex, anticipated and compound”, and that the proposals being put forward are not new, but have been recirculated more than once over the past years in different forms without any substantive treatment.

El-Omda points out that swapping debt for investments is an old mechanism in Egypt, which began in 2003 with Italy, and later with Germany between 2010 and 2011, but it has so far been applied at limited rates. He adds: “Expanding the scope of debt swaps would be a positive step, because it enables the state to convert part of its obligations into long-term investments instead of immediate cash repayment,” explaining that this mechanism was also applied in deals such as “Ras El-Hekma”, where about $10 billion was deducted out of $35 billion that was due, and that other countries such as Qatar and Kuwait have also benefited from converting their debts into assets and real estate.

Nevertheless, El-Omda expects the debt crisis to continue for a long time, explaining that the weakness of economic competencies in the current government and the difficulty of taking quick decisions add to the complexity of the scene, and that the House of Representatives has not provided the support required to enable the government to manage the crisis effectively.

He points out that the traditional tools for addressing debt are clear: reducing the budget deficit, increasing the volume of investments, and maximising foreign-currency revenues, noting that Egyptians abroad have played a decisive role in protecting the economy in past years, and that their remittances amounted to about $40 billion during 2025, a huge figure that reduces the pressure on external debt payments. He adds: “Increasing Egyptians’ investments at home or raising the volume of their remittances could provide significant liquidity and ease the burden of debt on the state.”

El-Omda expects the next two years to witness a gradual improvement in the economy, pointing out that “the situation has become more stable compared with the past, and we expect 2026 to be much better, with a possible decline in the dollar and in the inflation rate. But the challenges remain, especially with the approaching formation of a new government, and we hope that it will have the competence needed to manage the economy effectively.”

The Central Bank’s report No. 90 on “The External Position of the Egyptian Economy” provides a detailed reading of the level of external obligations. Total external debt reached about $161.2 billion by the end of June 2025, an increase of $8.3 billion over the previous year, despite repeated attempts to reduce reliance on external borrowing.

The debt is divided by maturity: long-term debts make up 80.8% of the total, at about $130.3 billion, against 19.2% for short-term debts ($30.9 billion). Short-term obligations amount to about $54.6 billion (33.8%) against $106.7 billion (66.2%) for long-term obligations, which highlights the concentration of the financial burden over the long term, but does not cancel out the immediate liquidity challenges.

Multilateral institutions represent the largest sources of external debt, at about $47.2 billion (29.3% of the total), including $14.2 billion owed to the International Monetary Fund. This composition makes Egypt’s financial position sensitive to fluctuations in international policies and to the orientations of international institutions, a factor that must be taken into account when designing debt management strategies.

Estimates indicate that the government’s medium- and long-term obligations due in 2026 reach about $34.9 billion, distributed between the first half of the year at $15.7 billion ($12.8 billion in principal and $2.9 billion in interest) and the second half at $19.2 billion ($11 billion in principal and $2.4 billion in interest). The most prominent of these maturities include the repayment of Eurobonds and dollar sukuk worth $1.4 billion each, along with Gulf and Saudi deposits totalling $7.3 billion, which reflects the state’s reliance on diverse sources to meet its obligations.

The report measures the efficiency of the external economy through the ratio of debt service to exports and to current receipts, which reached 53.6% and 34.5% respectively. These ratios show the extent of the burdens that external obligations place on foreign-currency resources, and reveal the fragility of the position given the reliance on volatile external flows.

Mounting debt and policies that recycle it

In the same context, a report by the Egyptian Initiative for Personal Rights, recently issued under the title “Will Egypt Get Out of the Sea of Sand?”, revealed the continued rise of Egypt’s external debt to about $161.2 billion by the end of June 2025, compared with about $155 billion just one year earlier, an indicator that reflects the failure of the policies pursued to curb the path of borrowing, despite repeated austerity measures and the floating of the currency.

According to the report, the increase in the volume of debt cannot be separated from the sharp inflation in the burdens of debt service, as repayment instalments and interest eat up tens of billions of dollars annually, placing direct pressure on the state’s foreign-currency resources. The report indicates that a large part of the monetary reserve is used to cover short- and medium-term obligations, which reduces the margin of financial safety and makes the economy more vulnerable to external shocks.

The report observes that the government, instead of reducing its reliance on loans, has resorted in recent years to recycling debt, that is, new borrowing to repay old obligations. According to the report, this pattern has led to a structural inflation of external debt, without being matched by a parallel expansion in the sectors capable of generating hard currency, such as export industry, agriculture or high value-added tourism.

At the level of creditors, the report explains that international financial institutions, foremost among them the International Monetary Fund, the World Bank and the African Development Bank, now make up an increasing share of total external debt, alongside bilateral loans from Arab countries. It stresses that this composition constrains the state’s options, as the loans are tied to economic reform and restructuring programmes that are reflected directly in commodity prices, subsidies and the exchange rate.

The report indicates that the government’s attempts to escape the crisis have not been directed towards reducing debt, but towards managing it in stages through selling assets, increasing reliance on short-term investments and signing new financing agreements, which has contributed to postponing the explosion rather than addressing the roots of the crisis. According to the report, these policies may improve indicators temporarily, but they leave debt at high levels that are difficult to service in the medium term.

The report concludes that the persistence of external debt at these levels, coupled with the decline in the value of the pound and high inflation rates, means that the cost of the crisis is not borne by the state alone, but is gradually transferred to citizens through the erosion of incomes, rising prices and cuts in social spending. It warns that the absence of a radical change in borrowing policies may turn debt from a financing tool into a permanent constraint on the economy and on fiscal sovereignty.

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