Pharaonic infrastructure and increasingly impoverished citizens: the debt hole is consuming Egypt.

Planeta Futuro is publishing a series of reports coinciding with the Fourth United Nations International Conference on Financing for Development to analyze the specific impact of the debt crisis on the populations of the most affected countries.

On an early June morning, sheltered from the scorching sun of Cairo by a massive metal structure, a stream of passengers walk through the central section of Adly Mansur station, located on the outskirts of Egypt 's capital. Here, a short distance from the airport, a newly opened light rail station, a new metro line, a train stop, and several bus stations converge, unconfined by other transport hubs. It is the largest interchange in the entire Middle East.

Large posters featuring the profiles of Egyptian President Abdel Fattah al-Sisi and his French counterpart, Emmanuel Macron, hang in various locations throughout the station. They were placed in April for the European leader's visit to the Arab country, which included this terminal and its Metro Line 3, largely funded by the European Union and operated by the Paris Metro operator. Two months later, their faces continue to be with passengers.

Adly Mansur station was inaugurated on July 3, 2022, the ninth anniversary of the day on which former army chief Al-Sisi ousted democratically elected President Mohamed Morsi from power. When it opened, Transport Minister Lieutenant General Kamel El-Wazir associated it with the new Egypt.

This "new republic" under construction, as the al-Sisi government calls it, also includes the new capital that Egypt began developing a decade ago in the middle of the desert , and which has become the executive branch's flagship project. The light rail connects Cairo with this new city, located about 45 kilometers away, and the spacious Adly Mansur terminal serves as a kind of portal between these two realities.

In the new capital, built from scratch, construction is moving forward at full speed and records are piling up: the tallest tower in Africa, the largest opera house in the Middle East, the largest cathedral in the region, the second-largest mosque in the world, and a military complex seven times the size of the Pentagon. But the reality is that for now, hardly anyone lives in the city.

This Egyptian "new republic," which is also evident in many other parts of the country, has been made possible in part by a perennial ace up its sleeve: debt. Over the last decade, the al-Sisi government has found in it a quick source of revenue that has allowed it to cement its authority and attempt to reshape Egypt. The problem now is that repaying it is beginning to become a growing nightmare.

“Nobody knows”

Since 2014, the year al-Sisi formally took office, Egypt’s foreign debt has soared from $46 billion (€40.132 billion) to nearly $153 billion (€130 billion) by June 2024. A third of this has been owed to multilateral institutions such as the International Monetary Fund and the World Bank, followed by bilateral lenders, including Saudi Arabia, the United Arab Emirates and, increasingly, China .

Since 2014, the year al-Sisi formally assumed office as president, Egypt's foreign debt has soared from $46 billion (€40.132 billion) to nearly $153 billion by June 2024.

Most of this debt has not been allocated to social services, productive economic sectors, or to increasing the Central Bank's reserves, but rather to plug huge budget deficits, finance mega-infrastructure projects, keep the currency pegged to the dollar for years, purchase weapons, and, over time, pay off past debt.

In addition to the new capital it is building in the desert, in 2015 and 2021 Egypt expanded the Suez Canal and dug a parallel lane to the historic canal . In 2016, the country agreed with Russia to build its first nuclear power plant . And in 2021, it signed a contract with Germany's Siemens to build a vast network of high-speed trains.

All of these megaprojects, along with many smaller ones, such as dozens of new cities and expansions of national transportation and energy supply networks, cost billions of dollars and are sometimes financed opaquely and, at least in part, through debt. In many cases, the economic return they can generate is highly doubtful.

“Al-Sisi's idea was to try to implement megaprojects that would allow him to promote national unity around them,” believes Egyptian politician and former MP Mohamed Anwar El Sadat, nephew of former President Sadat. “But we all believe that too much has been spent and that some of these projects were not priorities and could have waited a bit,” he adds.

The latest example of this type of development initiative was announced in early June, when the government unveiled its plan to build from scratch yet another city west of Cairo. Dubbed Geryan, Prime Minister Mostafa Madbuly called it an "urban and development revolution" and explained that it will be part of a massive project already underway to expand the fertile Nile River Delta into the desert. Its total cost is unknown.

"I think most ministers don't have much to say. And most of these megaprojects have been assigned to the Armed Forces. How are we going to get out of this? Honestly, no one knows," Sadat says.

Egypt's debt burden has become an increasingly heavy burden. In the new state budget, approved in June, nearly 65% ​​of spending is earmarked for servicing domestic and foreign debt, and 53% of revenue will be new debt, according to local media reports. Since 2021/2022, loan repayments and interest payments have soared by nearly 300%.

On the other hand, Sadat also notes with alarm that the government has begun to resort to the partial privatization of strategic state-owned companies and the granting of large tracts of public land in prime areas such as the Mediterranean and Red Sea coasts to pay off debts, especially with countries in the Arab Gulf, and to attract more investment.

The Chinese footprint

Amidst this financial maze, at the end of 2023, Egypt became the first country in the world to sign a debt swap agreement with China's international cooperation agency, commuting part of its obligations to the Asian giant for future development projects. China, the world's largest bilateral lender, gains foreign influence through its use of debt, and, curiously, the memorandum between the two countries was signed during a forum on the New Silk Road, the mega-investment and infrastructure program with which Beijing seeks to expand its global footprint .

Although the agreement has not yet been activated because a formula that satisfies both countries is still being negotiated, at the last China-Africa Cooperation Forum held in September, Chinese President Xi Jinping pledged the equivalent of €45 billion to develop the continent's infrastructure over the next three years. But in another gesture of his debt diplomacy, 60% of the funding would be provided through loans.

In China's global puzzle, Egypt occupies a unique position: it is a relatively stable country in a region plagued by instability; it is located where Asia, Africa, and Europe converge; and it controls the Suez Canal, one of the main arteries of global trade. "Furthermore, with the current trade wars and supply market readjustments, China is trying to secure alternative routes and production centers for its benefit; and, in a sense, Egypt can offer all of this," notes Egyptian Senator Mohamed Farid.

Along with its government, Chinese companies have also invested millions of dollars in Egypt in recent years, particularly attracted by infrastructure projects and the economic zone built around the Suez Canal. "Egypt needs all this investment and financing, the jobs, and the technology that can be transferred," Farid asserts. "But we must keep our eyes wide open to evaluate it and ensure it benefits the Egyptian people," he adds.

The government is using taxpayer money to cover debt interest instead of public services.

Mostafa Shehata, researcher and journalist

The price of health and education

Citizens have had no say in this government debt policy, yet they bear the brunt of its burden. In recent years, Cairo has adopted aggressive austerity policies and approved measures such as currency devaluation, subsidy reductions, and tax increases to comply with the demands of organizations like the IMF.

"The government is using taxpayer money to cover debt interest instead of spending it on public services," laments Egyptian researcher and journalist Mostafa Shehata.

Two of the hardest-hit areas are education and healthcare, for which 1.7% and 1.16% of GDP will be invested in the next fiscal year, according to local media, despite the Constitution requiring a minimum of 4% and 3%.

The effects are evident. In Egypt, around 90% of pre-university students attend public schools, but the Ministry of Education estimates that adequately accommodating them would require 250,000 new classrooms and an additional 250,000 teachers. Currently, classrooms are overcrowded, there are multiple shifts, and families are spending increasing amounts of money on private tuition.

“The decline in public aid has accelerated the privatization of education,” explains Hassan Gabr, president of the Independent Union of Egyptian Teachers.

Public healthcare doesn't offer a much better picture. Between 2012 and 2019, the number of hospitals is estimated to have decreased by 1%, and the number of public beds in the country by 10%, according to data from the state statistics agency. At the same time, the number of hospitals and beds in the private sector increased by 20% and almost 68%, respectively.

“Before, almost everything was free or at a nominal price, and hospitals were fully equipped. Patients didn't have to buy anything outside. Now the opposite is true,” explains Mohamed Abdel Hamid, a doctor at a public hospital in Cairo, from his office, jammed with patient files and people waiting in line.

"The government is taking a step backward in the healthcare sector, and citizens are the ones who pay for healthcare," he adds.

The precarious working conditions of doctors also contribute to one of the largest professional drains in the world . “Total public spending on subsidies and social protection has decreased from $29.4 billion in the 2013-2014 budget to $17 billion in the 2023-2024 budget,” Shehata summarizes.

Furthermore, mounting debt pressure and criticized monetary policy between 2016 and 2021 have led to several abrupt devaluations of the currency, which has lost 68% of its value against the dollar in the last five years. Added to this is the fact that inflation has soared, reaching peaks of 38% in recent years. The result is that lower- and middle-class Egyptians are becoming increasingly poorer .

In 2022, Egypt's state statistics agency (CAPMAS) found that since the start of the war in Ukraine, 74% of families had reduced their spending on food. A survey by the International Food Policy Research Institute (IFPRI) estimated that 25% and 43% reported reducing spending on education and healthcare, respectively.

“In general, Egypt's lower and middle classes face extremely difficult economic conditions. They are the hardest hit by austerity and the prioritization of debt repayment,” Shehata laments.