Egypt’s debt trap tightens as war on Iran bites
In his speech at the Egyptian Family Iftar last Saturday, President Abdel Fattah El-Sisi warned against remaining trapped in the external debt cycle that began nearly a decade ago, saying, “It is neither sensible nor fair to continue borrowing in foreign currency.”
The final accounts for the 2024-25 state budget, published recently by the Ministry of Finance, suggest some success in curbing state bodies’ debt. Yet, the severe fallout from the US-Israeli war on Iran since late February is expected to push borrowing higher this year if the conflict widens and drags on.
Back to the borrowing cycle
The war, which began with the assassination of the supreme leader on Feb. 28, has strained Egypt’s external balances.
Banking expert Ahmed Magdy outlined to Al Manassa what he sees as the war’s main economic repercussions: higher global energy prices, damage to Suez Canal revenues, and disruption to inbound tourism because of regional instability.
Brent crude futures have crossed the $100-a-barrel mark more than once, despite promises from the US president that the war would end quickly. That is well above the oil price assumed in the current fiscal year’s budget, which projected Brent at an average of $75 a barrel in 2025-26.
Suez Canal revenues are also under intense pressure after shipping lines announced they were suspending passage through the waterway because of war-related risks. That could send revenues back into the steep decline seen during the years of Israel’s war on Gaza, when they fell from $8.7 billion in 2022-23 to $3.6 billion in 2024-25.
“War-related pressure could push some economies, including Egypt, to rely more heavily on external borrowing to offset declining foreign inflows,” Magdy said.
Maye Kabil, who is responsible for the external debt portfolio at the Egyptian Initiative for Personal Rights, agrees. “Egypt may be forced to secure greater resources to cover its imported energy needs. At the same time, the weakening pound automatically raises the import bill in an economy that depends heavily on imports, with the value of imports nearing twice that of exports.”
In fiscal year 2024-25, petroleum imports hit a record of about $19.4 billion, as Egypt expanded its reliance on liquefied natural gas imports to meet domestic demand.
The government has acknowledged that the current war may force it to borrow more. According to Finance Minister Ahmed Kouchouk, the government has started talks with international institutions to secure external financing in the coming period if needed because of the war. “Such facilities could in practice mean addressing the debt crisis through new borrowing,” Kabil told Al Manassa.
Over the past decade, external debt has risen rapidly, from $55.8 billion in 2015-16 to $163.7 billion in 2024-25. The state is widely blamed for the increase because it has been the largest external borrower.
No escape without fixing structural imbalances
Analysts see no way out of the borrowing cycle that has defined Egypt’s attempts to address foreign currency shortages over the past decade except by solving structural problems in the economy.
Kabil describes reliance on short-term foreign investment, or so-called “hot money,” as one of the clearest signs of the economy’s current fragility and says it requires rethinking.
The average maturity of the government debt portfolio financed through capital markets fell to 2.9 years in 2025, shorter than in the previous five years, reflecting the dominance of short-term debt.
Recent conflicts have underscored the risks of short-term borrowing, with more than $5 billion leaving the debt market in the first week of the war alone. Still, allowing the dollar exchange rate to weaken helped attract new investment into that market, albeit at the cost of inflationary pressure that the new exchange rate, above 52 pounds to the dollar, will feed through the wider economy.
Against the backdrop of volatile economic performance, Iman Moheb, professor of economics at the Arab Academy for Science, Technology & Maritime Transport, told Al Manassa: “Without an efficient productive base, we will not be able to raise growth rates or foreign currency earnings in a sustainable way. Debt servicing also consumes a large share of revenues.”
Before the war against Iran broke out, Egypt’s economic picture appeared stable, with foreign currency reserves rising to an unprecedented $52.5 billion and the external debt of state bodies covered by the budget falling thanks to exceptional land-sale deals, led by the Ras El-Hekma deal. But experts said that boom was fragile, which is why the latest war has pushed the economy back into the danger zone.
Iman does not consider “debt-for-asset swaps to be investment, unless they help raise production and create effective jobs.”
“The solution is not simple,” she added, “but Egypt needs to start building a strategy centered on production and exports rather than borrowing, especially after the end of its previous IMF agreement. That should be backed by top-level technical support to speed the state’s exit from many sectors, strengthen the private sector’s role as an engine of growth, and create high-productivity jobs aligned with the demands of today’s economy. Public-private partnerships should also be expanded in key sectors.”
The economist also stressed the need for incentives for small manufacturers producing competitive products in the informal sector, so they can be brought into the formal economy and reflected in GDP. Equally important is creating a supportive business environment and liberalizing investment to attract foreign direct investment.