Egypt Does Not Need Debt Relief
Some Egyptians are beginning a campaign to urge international creditors to forgive some of Egypt’s indebtedness on the grounds that it was used to benefit the previous ruling elite rather than the Egyptian people. Debt relief for Egypt in these circumstances, however, would be a bit like giving more crack to an addict. Certainly, some debts were questionable, but the real problem facing Egypt is structural: an inability to improve long-term domestic efficiency. Steps need to be taken to create a more equitable and efficient taxation system, and to develop and implement a realistic plan for investment in the capacities of the Egyptian people. If that were achieved, Egypt’s debt position would not be so burdensome. In fact, Egypt is not a particularly over-leveraged country, with its overall debt representing 80.5% of its GDP, but its external debt amounting to only $30.6 billion, which puts it 65th in the world in terms of external indebtedness. (To put it differently, that means that Egypt’s external debt to GDP ratio is about 15%, so the prospect of Egypt facing an immediate balance of payment crisis is remote.) Egypt faces a long-term problem arising out of a chronic current account deficit which can only be remedied by increasing the productivity of its population. This will require substantial long-term investments, however, and I hope that the new government turns its attention to figuring out how this can be accomplished. Debt-relief at this stage, I fear, would only defer the pressure to make the needed structural reforms.