Egypt Loans
Welder at work
Courtesy Embassy of Egypt, Washington
Egypt's borrowing began on a modest scale in the early 1960s
after the depletion of reserves. In 1970 long- and medium-term
public loans (no figures were available for private loans) totaled
US$397 million. Lending to Egypt rose rapidly after the mid-1970s.
Up to 1978, loans came largely from Arab oil-producing states,
which lent an average of more than US$950 million annually from
1975 to 1978. During this period, the government was also receiving
loan commitments from OECD countries and multilateral
organizations. These exceeded US$1 billion in 1976. By 1977 loans
reached more than US$2.3 billion. (Unless otherwise stated, all
loan figures in this section are equal to disbursements minus
repayments and include public as well as private lending.) The
figure fell to US$1.7 billion in 1979, because of the cessation of
Arab aid. Since then most lending has been underwritten by OECD
nations. Between 1979 and 1985, Egyptian borrowing ranged annually
between less than US$1.4 billion and slightly more than US$1.8
billion, with an average of more than US$1.6 billion. Until 1985
external borrowing was thus the chief source for financing the
current account deficit.
The situation was dramatically reversed in 1986, and annual
loans in that year and in 1987 amounted to less than US$0.70
billion. This coincided with lower oil income, and was the opposite
of what happened in the mid-1970s when oil prices as well as
lending rose. By 1986 Egypt faced serious debt problems and was
negotiating with the IMF and other creditors on debt payments and
rescheduling as well as on economic restructuring. The creditors
were reluctant to continue providing credit unless an agreement
were reached with Egypt on these questions.
Interest rates on foreign economic loans fluctuated. The
nominal rates for civilian loans ranged between 5 percent and 6.5
percent, averaging 5.6 between 1981 and 1988. The real rates were
much lower, amounting to an average of 0.4 percent over the same
period. Interest on military loans was, by agreement, fixed at 12
percent to 14 percent.
Repayments increased steadily. From US$764 million in 1977,
they rose to their highest level of about US$1.54 billion in 1985
at the rate of 9.1 percent per annum. This meant that the actual
amount of funds injected into the economy did not rise in
proportion to the increase in loan commitments.
When all the preceding sources of external finance--grants,
direct investment, and loans--began to fall to levels insufficient
to cover the current deficit, Egypt resorted to incurring arrears
in payments to official creditors. The arrears were difficult to
document because of the lack of data. According to one estimate,
the arrears may have risen from US$131 million in 1981 to US$739
million in 1986. They fell after the May 1987 IMF agreement and the
subsequent arrangement with the Paris Club (the informal name for
a consortium of eighteen Western creditor countries) to reschedule
Egypt's debts.
In addition to loans, Egypt was also able to obtain short-term,
high-interest credits from firms that supplied commodities and
services. Egypt had resorted to these credits since the mid-1970s
when imports soared. Disbursements rose steadily and between 1983
and 1985 averaged about US$1.86 billion annually, ranking higher
than economic grants. Repayments, however, did not keep up with
disbursements and in the late 1980s fell into arrears. Repayment
delays of up to eighteen months and more for supplier credits were
reported. Because of these delays and the mounting overall debt,
until the signing of the agreement with the IMF in May 1987,
Western credit agencies were hesitant to offer cover.
Data as of December 1990
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