In a sign of the heavy obligations Egypt has taken on since turning to debt to prop up its economy, debt servicing makes up more than half of allocations in the fiscal year 2023/24 draft budget presented to Parliament on Tuesday.

The draft budget was presented by Finance Minister Mohamed Maeit on Tuesday to the House of Representatives. In a copy of the draft that Mada Masr reviewed, 56 percent of total allocations have been directed to debt servicing, which includes repayments on the loan’s primary and its interest. In order to fund this budget, the state is counting on a revenue pool, 49 percent of which will come from new debt.

For more than a year, Egypt has been facing a severe economic crisis precipitated by Russia’s invasion of Ukraine, which exposed Egypt’s risky reliance on hot money, as investors pulled out of Egypt to flee for safer debt markets. The war, playing out in a central hinge point for the global supply of food and natural resources, has sent prices skyrocketing.  With a rising supply bill and no sustainable source of foreign currency inflows, the Egyptian pound has lost half of its value and is likely to fall even further as the International Monetary Fund has demanded a flexible exchange rate in the December US$3 billion Extended Fund Facility loan. 

In the new budget project, debt servicing amounted to LE2.435 trillion, including LE1.12 trillion in interest, and LE1.315 trillion for loans.

The state budget makes a distinction in general allocations between “allocations” and “uses.” 

Allocations include five categories: salaries; procurement of goods and services; subsidies, grants and social support spending;  other spending; and public investments. Uses, in addition to the other sections mentioned, include loan principals and interest repayments and acquisition of domestic and foreign financial assets (mostly composed of the budget contribution to state-owned enterprises).

The following figure shows the general allocations in the budget, which shows the prominence of debt servicing.

Allocations to pay interest in the new fiscal year’s budget project were up 44 percent, while the allocations to pay the principal of the loans increased by 36 percent.

The following chart shows the growth in debt servicing allocations in the four state budgets.

The significant increase in allocation for interest payments is a result of the tight monetary policy that the Central Bank of Egypt has adopted through interest rate hikes, which has led to interests becoming a bigger burden in the general budget because as the state is the largest borrower in the domestic market.

And while money will be going out to pay loans, the largest amount of money coming into the state budget is also from loans. 

Borrowing represents 49 percent of total resources (LE2.14 trillion) in the coming fiscal year’s state budget, as illustrated by the chart below: