Debt swaps and the devil in the details
The Egyptian government has turned to deals like Ras El-Hekma as a quick fix for its deepening foreign debt crisis, adopting a strategy of allocating land for Gulf investment and channeling the returns toward meeting ballooning financial obligations. But as these liabilities continue to rise, Cairo is now exploring other options to reduce the crushing debt burden.
In recent weeks, Prime Minister Mostafa Madbouly has repeatedly spoken about debt swap mechanisms, agreements that were traditionally handled by the Ministry of Planning, Economic Development and International Cooperation (MOIC). These agreements have never attracted much attention due to their limited scale. The few deals that were signed amounted to only a few hundred million dollars—barely a dent in Egypt’s more than $160 billion in external debt.
Official statements, confirmed by sources within the MOIC who spoke with Al Manassa, indicate that the government now aims to expand such agreements in the coming period, hoping they can play a greater role in alleviating the debt load. Yet experts warn that the lack of transparency in previous deals makes it difficult to assess their actual financial and developmental impact.
In simple terms, a debt swap entails the cancellation of some portion of a country’s foreign debt in exchange for local investment in a particular project or enterprise. While debt swaps have not significantly reduced the debt burden of developing countries, they have contributed to the implementation of important development projects in the countries that have relied on them.
China’s hat in the ring
The total value of debt Egypt has swapped with international partners over the years has barely approached $1 billion—a modest sum accumulated over decades of agreements, mostly with European partners since 2001. This is despite the strong backing that debt swap agreements have received from the Egyptian state.
In 2022, the MOIC launched the Nexus of Water, Food and Energy (NWFE), the same year that Egypt hosted the COP27 climate summit in Sharm El-Sheikh. The summit served as a timely platform to promote debt-for-development swaps that would boost green projects in Egypt. Still, the initiative failed to yield large-scale agreements. The mechanism remained limited to a few arrangements, primarily with European countries—Germany in particular.
But in recent years, China has emerged as a new and significant partner in this space.
The government is targeting a conversion of part of its debt to China—estimated at around $8 billion—into local-currency financing for priority development projects, a source familiar with Egypt’s debt swap portfolio at the MOIC revealed to Al Manassa. This would ease pressure on Egypt’s foreign currency reserves while also contributing to the country’s declared sustainable development trajectory.
Consultations with Beijing have been underway since the signing of a memorandum of understanding in October 2023, on the sidelines of the Belt and Road Forum. That was followed by a framework agreement for the first phase of the swap, signed in July 2025 during the Chinese Premier’s visit to Cairo.
The scale of the incoming deal could be historic. An insider—speaking to Al Manassa on condition of anonymity—expects the pact to rank among Egypt’s most significant debt-relief maneuvers. Yet, as the Egyptian-Chinese partnership is still in its formative stages, both the Phase I dollar amount and the sectoral project list have yet to be finalized for disclosure.
The Western door remains ajar
Egypt’s eastward pivot toward China has not negated the role of European partners. According to the same government source, negotiations are currently underway to swap €100 million in debt this year.
The MOIC anonymous source confirms that while the dollar value of this latest European deal is modest, its political and strategic weight is significant. The EU is leveraging this move to operationalize its commitment to debt swaps, a key pillar of the 2024 Strategic and Comprehensive Partnership Agreement designed to stabilize Egypt’s fiscal landscape.
The impact of Egypt’s swap programs is scaling fast. From a base of $720 million in 2023 covering roughly 120 projects, the total financing injected into development projects jumped to $900 million by July 2025, the source explained to Al Manassa. This capital is being strategically deployed into the economy’s backbone—water and sanitation, green energy, and the critical education and food security sectors.
The debt burden endures
Despite recent initiatives, the debts of previous years continue to impose interest obligations that consume a significant portion of Egypt’s government revenue.
Debt swaps are moving to center stage as the cost of rolling over debt becomes prohibitive. The sheer scale of interest and principal payments is choking the government’s ability to tap markets for fresh funds, Head of Alraya Financial Consulting’s Hany Abou El-Fotouh tells Al Manassa. “There is a real need for alternative ways to reduce the debt bill,” he said.
Abou El-Fotouh pointed to Egypt’s net debt service index—which measures the gap between annual obligations and anticipated new borrowing—as a telling indicator of the current pressure. That gap rose to $3.5 billion in fiscal year 2024–25, up from $2.5 billion the previous year.
Egypt may be weaning itself off excessive borrowing, and debt levels are finally cooling. Yet, the “interest trap” persists, he emphasized. Past borrowing has left a massive payment bill that continues to drain revenue at the expense of growth. “There’s an ongoing need to attract direct foreign investment that isn’t tied to debt,” he stressed.
Data from the first four months of the current fiscal year 2025/26 show that interest payments on public debt—which includes both domestic and external obligations—exceeded total budget revenues during the same period. This reflects a dramatic depletion of the state’s income.
Development, not privatization?
Haneen El-Mahdy, an economist at Dubai-based DFA, told Al Manassa that debt swaps could offer an opportunity to reduce foreign debt without relinquishing public assets. Her comments come amid intense public debate in Egypt following the Ras El-Hekma deal of 2024.
El-Mahdy emphasized that modern debt-for-development swaps are sovereign financing tools—not privatization arrangements. “Creditors don’t receive ownership stakes, control rights, or public or private assets,” she explained. “In return, they simply receive a commitment to development spending.”
There are no publicly available data on how Egypt’s previous debt swap agreements were implemented. But one of the few disclosed examples—a 2022 report on Egyptian-German partnership—revealed that Germany had written off part of its debt to Egypt. In exchange, Egypt’s central bank converted the canceled amount into Egyptian pounds, and the government committed to spending those funds on jointly agreed projects. In this way, Egypt effectively reduced its obligations in foreign currency without sacrificing control of national assets.
Still, El-Mahdy cautioned that the German model may not be replicated across other agreements. “There’s no unified framework,” she said, explaining that the terms of each swap depend on the type of debt, the number of parties involved, and the mechanisms for oversight and evaluation.
Hidden risks
Despite the positive framing of these agreements by the MOIC, Dalia Wahdan—Associate Professor of public policy at the American University in Cairo—warned of serious transparency gaps that make it difficult to evaluate the effectiveness of these swaps in either development or debt relief.
She pointed to Sri Lanka’s controversial deal with China, in which the government granted a 99-year lease on its ports in exchange for partial debt relief.
Wahdan traces the debt-swap experiment back to 2001, beginning with a landmark deal with Italy that bankrolled conservation at Wadi Al-Hitan in Fayoum. But beneath the surface-level success lies a persistent transparency vacuum. The formal contract was never published. Instead, the public was given only a vague memorandum of understanding, and to this day, no post-project impact assessment exists to quantify its actual returns.
Transparency remains a major casualty in Egypt’s new debt strategy, according to Wahdan. The German-funded climate and development deal was signed behind closed doors with undisclosed terms. Even the celebrated 2020 green bonds—hailed by officials for their market efficiency—have yet to produce a single real environmental impact report to justify their “green” label.
Drawing on these precedents, Wahdan warned that the real purpose of such agreements may be to restructure Egypt’s unsustainable debt load, rather than to fund genuine development. “The primary goal of debt swaps is often to help indebted countries meet their obligations and preserve their credit ratings so they can continue to attract investment or take on new loans,” she said. “They’re also used to prevent defaults that could disrupt global financial markets.”
As for Egypt’s upcoming deal with China, many questions remain. Will it resemble previous European-style agreements that involved development spending? Or will it follow Sri Lanka’s path—granting China long-term access to strategic assets in return for debt cancellation?
The coming months may reveal whether China will offer Egypt genuine relief—or whether the devil, once again, lies in the details.