Draft budget: 65% of total expenditure allocated for debt service, LE3.5 trillion in new borrowing

Egypt’s new draft budget, which Mada Masr reviewed, dedicates over 65 percent of total government spending in the coming fiscal year to pay debt.

High state borrowing was also the focal point of lawmakers’ critique of last year’s budget, as they reviewed and passed the government’s closing account statement earlier in the week.

The new draft budget, presented to the House of Representatives on Wednesday by Finance Minister Ahmed Kouchouk, projects total spending to be at LE6.761 trillion (over US$132 billion at the time of writing), with 64.8 percent of that figure earmarked for debt servicing.

Loan repayments are set to rise by 29.7 percent compared to the current fiscal year, reaching LE2.084 trillion in fiscal year 2025/2026. Interest payments are also projected to grow by 25.3 percent, amounting to LE2.298 trillion.

The increase in interest payments comes despite a projected decline in the average interest rate on treasury bills and bonds to 16 percent — down from 25 percent in the current budget. 

“The size of interest allocations is tied, on one hand, to interest rates and, on the other, to the volume of borrowing,” Mohamed Badrawy, a member of the House Planning and Budget Committee, told Mada Masr. 

“The continued large increases in interest allocations stem from the natural annual rise in borrowing,” he said. “A slowdown in the growth of interest payments would require a more significant decline in interest rates, following their record highs last year.”

Last year, the Central Bank of Egypt raised interest rates by a cumulative eight percent in the first quarter before halting further adjustments. The Monetary Policy Committee, set to meet on Thursday, is expected to announce the first rate cut since the rate rise began.

Meanwhile, most of the government’s resources in the coming year’s proposed budget are to come from borrowing and securities issuances — treasury bills and bonds — which make up about 53 percent of total public resources in the new draft budget.

New borrowing is projected to exceed LE3.5 trillion, while total resources for FY 2025/26 is estimated at LE6.761 trillion.

Lawmakers criticize last year’s state budget 

The government’s closing statement for last year’s budget was passed on Tuesday, though not without comment from lawmakers, some of whom rejected the statement when Kouchouk first presented it to the House the day before.

The increasing rate of government debt in particular elicited condemnation from several MPs.

MP Diaa Eddin Dawoud, an independent, rejected the final accounts for FY 2023/24 during Monday’s session. He said that total public debt had reached LE11,457 billion, compared to LE8,609 billion on June 30, 2023, an increase of LE2,848 billion, or 33.1 percent. 

“Are these numbers that we can accept and extend this government’s term?” he said. “These results have exhausted Egyptians, making them feel they have no one to protect them."

Every child born in Egypt owes LE105,000 in debt due to foreign borrowing, said Housing Committee Chair and member of the Freedom Party MP Mohamed Attia al-Fayoumy. 

Fayoumy added that the cost of debt servicing increased by more than LE1 trillion over the previous fiscal year. "These are alarming numbers,” said the committee chair, adding that “the government must be warned about debt interest."

MP Amira al-Adly, a member of the Coordination Committee of Party Youth Leaders and Politicians (CPYP), accused the government of “poor management,” noting that “we pay installments and interest on loans we don't use, waste billions on projects due to inaccurate and lacking feasibility studies.”

MP Mohamed Abdel Aziz, another CPYP member, also rejected the final accounts for FY 2023/24, commenting that public debt has increased by 143 percent over the last five years.

Kouchouk responded to MPs' criticism by stating that both the government and lawmakers will seek to improve financial indicators in general. 

“Therefore, we will work diligently on many of the observations noted by MPs and included in the Planning and Budget Committee's report, including resource development, the idea of ​​tax breaks and turning a new page with citizens and investors," the finance minister said.

Kouchouk also said that Egypt’s financial performance had improved significantly over the past nine months. Despite declining revenues from the Suez Canal and the oil sector, he said, Egypt achieved a primary surplus of LE435 billion, representing 2.5 percent of its gross domestic product (GDP). Additionally, general revenues grew by 32 percent, while expenditures increased by 24 percent.

Looking ahead to the budget for FY 2025/26, which he described as the “budget for growth, stability and business community partnership,” Kouchouk expressed hopes for another, higher primary surplus, a reduction in the deficit and increases in tax revenues and salaries for government employees.