Audit and Cancel Egypt's Debt

28 October 2011

On 31 October, a group of researchers, activists and civil society organizations will launch the Egyptian Debt Audit and Cancellation Campaign in coordination with international actions in Europe and Latin America. The main goal of the campaign is to audit and cancel Egypt's foreign debt that was accumulated under ousted President Hosni Mubarak. Based on credit that was extended to a dictatorial regime lacking even minimal standards of accountability, transparency and public oversight, this debt is considered "odious".

Egypt's outstanding foreign debt hovers around $35 billion or 15 percent of the GDP. Some may contend that Egypt is not a heavily indebted country. Foreign debt stock (denominated in foreign currencies) is by no means huge as compared to countries with similar income. Foreign debt service has constantly decreased since the early 1990s. According to the Ministry of Finance, the ratio of foreign debt service (interest and installment payments) to exports was around 6 percent in July/August 2011, which is far from alarming.

But foreign debt is only one side of the story. If domestic debt is considered as well, then Egypt is a heavily indebted country. Domestic debt, which refers to credit denominated in Egyptian pounds, stands at a massive 68 percent of the total GDP. This ratio exceeds the "safe limit" set by the Copenhagen criteria (60 percent) and is a definite cause for alarm. If domestic and external debt are added up, Egypt's total public debt is a staggering 83 percent.

Public debt service is considerably high as a percentage of public expenditure. According to the Ministry of Finance, in July/August 2011 it constituted 29.2 and 22.3 percent of total expenditure respectively. These figures suggest that a considerable percentage of government expenditure goes to debt service instead of public services like health, education and infrastructure. Egypt's outstanding debt reveals how problematic public finances were under Mubarak. They also reveal the weak institutional framework that should have monitored and audited Egypt's mounting debt, be it foreign or domestic.

There are three good reasons to audit and cancel Egypt's foreign debt.

The first is ethical: Why should Egypt’s future generations pay for debts they didn't know about, let alone approve? Foreign governments and international financial institutions provided the Mubarak regime with credit despite a lack of transparency and accountability. Where all the money ultimately went remains a legitimate question given the surge of recent reports about high levels of corruption and cronyism inside the Mubarak regime.

The second is political: Foreign debt cancellation will help reduce Egypt‘s overall public debt, which is quite massive. It can become an effective tool to support Egypt's economic recovery in the short and long run. Debt cancellation is akin to raising capital inflows, which is key for any country undergoing a democratic transition. Putting the request to foreign governments and financial institutions, especially Western countries, would be an occasion to test their commitment to democratization in Egypt.

The third is strategic: A debt audit and cancellation will help ensure that no future credit is extended to Egypt without adequate guarantees for transparency and accountability. By shining a light on Egypt‘s budgeting, taxation policies and public expenditures, a foreign debt audit is only the first step in democratizing public finances.

The Egyptian revolution raised demands that were not only political, but socio-economic too. State finances top the list of public policies that affect the daily lives of millions of Egyptians. Unless they become subject to more transparency and popular scrutiny, democratization will remain incomplete. The Egyptian Debt Audit and Cancellation Campaign hopes to eventually shift focus from foreign debt to domestic debt, and to raise crucial questions about where all the borrowed money ended up. Ultimately, the campaign hopes to ensure that Egypt's public finances really become public.

AlMasry AlYoum - English Edition
Amr Adly