Russian Debt Swap for Egypt: A Comprehensive Analysis of Public Debt Implications and Repayment Prospects
Egypt–Russia financial relations are witnessing a qualitative shift through the adoption of innovative mechanisms for debt repayment, most notably the transition from repayment in U.S. dollars to repayment in Russian rubles for the $25 billion El-Dabaa nuclear power plant loan. This move comes within the framework of Egypt’s broader strategy to ease pressures on foreign currency reserves and diversify funding sources. By the end of 2024, Egypt’s total external debt had reached $155.1 billion, with repayment obligations of $43.2 billion due in 2025.
General Context of the Russian Debt Swap
Scale of Egypt–Russia Economic Cooperation
Trade relations between Egypt and Russia have experienced remarkable growth, with bilateral trade increasing by 30% in 2024 to reach $9.4 billion. This growth is attributed to stronger cooperation across multiple sectors, including energy, agriculture, and industry, with particular emphasis on the use of local currencies in trade settlements.
Major Strategic Projects
Egypt–Russia financial cooperation revolves around two flagship projects:
- El-Dabaa Nuclear Power Plant: The largest project in Egypt–Russia cooperation, valued at $25 billion, signed in November 2015. The project involves the construction of four Generation III+ nuclear reactors with a total capacity of 4,800 megawatts, with the first reactor scheduled to begin operations in 2028.
- Russian Industrial Zone in the Suez Canal Area: With an investment of $4.6 billion, this zone—dubbed “Sun City”—is intended to serve as a launchpad for Russian companies into African and Middle Eastern markets. Spanning 2,000 hectares, it will be divided into two sections named “Moscow” and “St. Petersburg.”
Mechanism of Debt Swap and Ruble Repayment
Transition from Dollar to Ruble
In June 2025, Russian President Vladimir Putin ratified an annex to the agreement allowing Egypt to repay the El-Dabaa loan in Russian rubles instead of U.S. dollars. According to Russia’s Deputy Finance Minister, this shift was prompted by “difficulties in servicing loans in non-favorable currencies.”
The original agreement was amended in September 2024, when Russian officials confirmed that Egypt had fully settled all debts due until early 2024, and that all subsequent loan installments are now being repaid in line with the revised schedule.
Scope of Local Currency Settlement
Russian Minister of Industry and Trade Anton Alikhanov indicated that 40% of bilateral trade transactions are currently conducted in local currencies. This trend aligns with the global strategy of reducing dependence on the U.S. dollar in bilateral trade.
Impacts on Public and External Debt
Current External Debt Position
Egypt’s external debt stood at $155.1 billion at the end of December 2024, up slightly from $152.9 billion in June 2024. The external debt-to-GDP ratio was estimated at 42.9% by the end of 2024.
Debt Service Burden
Egypt faces substantial repayment commitments in 2025, with principal and interest obligations totaling $43.2 billion in the first nine months of the year, distributed as follows:
- Egyptian Government: $10.4 billion
- Central Bank: $21.2 billion
- Commercial Banks: $8.1 billion
- Other Sectors: $3.5 billion
Expected Repayment Methods and Financial Alternatives
Diversification Strategy in Repayment Mechanisms
Egypt has adopted a multi-pronged strategy for managing its financial obligations, encompassing five main mechanisms:
- Repayment in Russian Rubles: This option provides greater flexibility for the Egyptian economy by alleviating pressure on dollar reserves, improving their availability in the local market, and stabilizing the exchange rate.
- Direct Investment as a Debt Alternative: Egypt successfully converted part of its liabilities through the $35 billion Ras El-Hekma deal with the UAE, which included converting $11 billion of UAE deposits into direct investments.
- Debt-for-Investment Swaps: Egypt has managed to convert $900 million of its debt into developmental investments with countries such as Germany, China, and Italy.
- Investment Projects as Repayment Tools: Russian mega-projects in Egypt serve as effective mechanisms for converting debt into productive assets.
The Russian Industrial Zone is expected to generate annual revenues of around $7 billion once fully operational, contributing to improving Egypt’s trade balance and securing sustainable income streams for debt servicing.
Risks and Associated Challenges
Currency and Liquidity Risks
Despite its advantages, ruble repayment faces critical challenges:
- Exchange Rate Volatility: The Russian ruble is subject to sharp fluctuations due to economic sanctions and war-related pressures in Ukraine, complicating long-term financial planning.
- Limited Convertibility: The ruble lacks free convertibility compared to the U.S. dollar or euro, restricting its use outside the Russian market.
Technical and Regulatory Challenges
The new repayment mechanism requires the development of specialized banking systems and formal agreements between the two central banks, alongside a robust regulatory framework to ensure transparency and effective oversight of transactions.
Future Scenarios
- Expansion of Local Currency Use: If ruble repayment of the El-Dabaa loan proves successful, Egypt may extend this model to other partners. Ongoing negotiations with China over yuan-based trade settlements could gradually reduce Egypt’s reliance on the dollar.
- Development of a Regional Trade Platform: With its accession to BRICS, Egypt is seeking alternative financing mechanisms based on an economic bloc representing over 50% of the global population. This could pave the way for a unified currency or advanced swap system to reduce dollar dominance.
- Industrial and Technological Integration: Egypt–Russia cooperation aims at technology transfer and localization of advanced industries, particularly in nuclear energy and chemical sectors. Such integration could create high value-added outputs, boosting exports and productivity while easing debt burdens.
Macroeconomic Implications
Improvement of the Trade Balance
Forecasts suggest that Egypt–Russia cooperation will strengthen Egypt’s trade balance through:
- A 21.1% increase in Egyptian exports to Russia, reaching $144.9 million in the first two months of 2025.
- Diversification of import sources, reducing dependence on traditional suppliers.
- Development of new export-oriented industries within the Russian Industrial Zone.
Strengthening Foreign Reserves
Economic reforms have helped boost Egypt’s foreign currency reserves to $47.4 billion, providing greater flexibility in managing external debt obligations.
Strategic Recommendations
Short-Term (2025–2026)
- Develop comprehensive regulations for local currency transactions to ensure transparency.
- Strengthen institutional capacity at the Central Bank to manage risks associated with non-traditional currencies.
- Diversify the debt portfolio by spreading obligations across multiple currencies.
Medium-Term (2027–2030)
- Build advanced trade platforms and electronic payment systems that support multi-currency transactions.
- Expand strategic partnerships by concluding similar agreements with BRICS members to reduce reliance on traditional financial systems.
- Foster export-oriented industries leveraging the Russian Industrial Zone to enhance competitiveness.
Conclusion and Outlook
The Russian debt swap experiment represents an innovative model that could help address part of Egypt’s external debt challenges. Successful implementation of ruble repayment for the El-Dabaa loan could pave the way for more flexible and independent financial mechanisms.
Current indicators suggest that Egypt’s target of reducing external debt by $1–2 billion annually, as announced by the government, is attainable through:
- Expanding debt-swap arrangements with diverse international partners.
- Enhancing export performance via new investment projects.
- Developing high value-added economic sectors.
The main challenge lies in managing the risks associated with this transition, particularly exchange rate volatility and limited currency convertibility. Achieving success in this direction requires advanced institutional expertise and the building of balanced strategic partnerships that safeguard Egypt’s long-term national interests.
Dr. Ahmed El-Emam
Economic Advisor
Experts Approach for Business Development
