NEW YORK – A glance at Egypt’s public finances reveals a disturbing fact: the interest that the country pays on its foreign loans is larger than its budget for education, healthcare, and housing combined. Indeed, these debt-service costs alone account for 22% of the Egyptian government’s total expenditures.
The impact has become impossible to ignore. With growing political uncertainty and a slowing economy, Egypt is likely to witness decreasing government revenues, increasing demands for urgent spending, and rising interest rates on government borrowing. This could lead to a fiscal catastrophe for the government at the very moment when the country is attempting a complicated political transition.
Egypt’s public debt is around 80% of GDP, very close to the 90% level that economists Kenneth Rogoff and Carmen Reinhart identify as a harbinger of slower growth and heightened vulnerability to financial and fiscal crises. Egyptians need only glance north, at the European debt crisis, to understand they should sort out their debt problem now, rather than waiting until it reaches Greek proportions.
This debt was incurred during the 30-year reign of the deposed president, Hosni Mubarak. In international law, debt that is incurred without the consent of the people, and that is not used to their benefit, is referred to as “odious”; as such, it is not considered transferable to successor regimes. The reasoning is simple and logical: if someone fraudulently borrows money in my name, I am not expected to pay it back, and neither should a country’s population when an unrepresentative leader borrows in their name and to their detriment.