Campaign calls for canceling Egypt’s debts amid credit rating downgrade

In an effort to ease its US$35 billion debt load, Egypt is hoping to change loan conditions and salvage the country's post-revolution economy. 

Minister of Planning and International Cooperation Faiza Abu Naga, last week asked the World Bank to review loan conditions for Cairo over the coming months.

Her call has added urgency given the decision by the world's three leading international credit ratings agencies to downgrade Egypt following the revolution.

Standard and Poor lowered Egypt's long-term foreign currency sovereign rating from BB+ to BB in February. The move reflected the growing alarm with which investors were viewing developments in Egypt, and means the government will likely have to pay higher rates of interest on new loans.

Days before Standard and Poor's decision, two other ratings agencies delivered bad news. Moody's slashed its rating for Egyptian government bonds and also downgraded its outlook on the country from stable to negative–a move which had also been announced by Fitch days earlier.

Monal Abdel-Baki, an assistant professor of economics at the American University of Cairo, said the downgrading meant "the near future looks uncertain for Egypt".

She pointed out that in order to be able to buy goods from abroad, a country has to generate revenue from its own exports.

She added that if a country cannot do that then it must borrow foreign currency–a situation which has led to the development of Egypt's foreign debt.

According to Abdel-Baki, the global economic slowdown means that Egypt's exports will take a further battering, yet any future loan agreements will be more expensive because of the recent credit downgrades.

Moreover the increasing budget deficit, which Abdel-Baki estimates has gone up by at least $3 billion during the revolution, means the country will have to borrow even more in future.

"The motto of the revolution was 'equality, democracy and freedom,' but of course economists keep complaining about this and are trying to tell people to carry on with work and to stop demonstrating," she said.

"This is harming the economy, yet the demonstrators say this is the process of democracy."

She added that the current state of the economy was understandable given the political events of the past few weeks, but that the best way to get Egypt back on its feet was to hold presidential and parliamentary elections as soon as possible.

A group of activists are launching a grassroots campaign aimed at canceling Egypt’s debts. They believe the huge sums owed by the government will hamper the growth of post-Hosni Mubarak Egypt, and are calling on institutions and governments worldwide to ditch the nation's debts.

According to Ahmed Naguib, an activist who is helping to spearhead the campaign, the debt relief campaign will be launched in a matter of weeks along with a website and Facebook page.

He said there was a core group of ten people working on the project and they are being helped by a network of economists, lawyers and former Egyptian ambassadors. They want to see the debt cancelled prior to the upcoming parliamentary and presidential elections.

"We want to convince these countries to block the debt before the elections. This will confirm their friendship with the people of Egypt– not the former regime," Naguib said.

He added that his group would launch the campaign by targeting a number of European countries including Britain, France, Sweden and Denmark.

"We want to start with Britain because we believe the UK's position from day one of the revolution has been honorable and supportive. Britain, along with the other countries, wants to support Egypt and have a friendship with us."

According to Tim Jones, policy officer for UK debt relief group the Jubilee Debt Campaign, Egypt owes £100 million ($160 million) to the British government.

"We have been calling for Egypt's debt to be audited and properly cancelled," he said. "If loans have been given to dictators and not used for the benefit of the people then a court should be set up to establish whether the debt should be cancelled."

According to a statement issued last month by the Jubilee Debt Campaign, Egypt repays its foreign debt at a rate of $3 billion per year.

Since 1981, the Egyptian government has made $80 billion of foreign debt and interest repayments.

The Jubilee Debt Campaign accused the Mubarak government of accumulating debt "in the interests of the regime" rather than the people.

"Some of the country's debt is undoubtedly military in nature," read the group's statement.

"The British Government has allowed UK companies to supply Egypt with as much as £23 million ($37 million) of military equipment in 2008 and £16 million ($26 million) in 2009."

It added: "If the revolutions in Tunisia and Egypt genuinely usher in a new era of independence for the people of those countries…the next step will be holding to account those responsible for decades of kleptocratic and brutal rule."

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