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Debt Swaps and IMF Reforms: Comprehensive Analysis of Their Impact on Egypt’s Economy as of July 2025
Introduction
Egypt has undergone a profound economic transformation through the implementation of an ambitious reform program supported by the International Monetary Fund (IMF), combined with an innovative debt swap strategy exceeding $36 billion. These reforms have yielded tangible results, with economic growth rising to 4.77% in Q3 of FY 2024/2025 and inflation declining from a peak of 38% in September 2023 to 13.9% in April 2025. Simultaneously, the structure of investment shifted significantly, with the private sector now accounting for 62.8% of total investments.
Egypt faced a severe economic crisis exacerbated by the Russia–Ukraine war and the aftermath of the COVID-19 pandemic, resulting in surging inflation, declining foreign reserves, and rising external debt. In December 2022, the IMF approved a $3 billion Extended Fund Facility (EFF), later expanded to $8 billion in March 2024.
The reform agenda is built around four core pillars:
Exchange Rate Liberalization
Adopting a flexible exchange rate system to enhance competitiveness and boost exports.
Monetary and Fiscal Discipline
Tightening monetary and fiscal policies to curb inflation and ensure debt sustainability.
Social Protection
Expanding safety nets to support vulnerable households.
Private Sector Empowerment
Rebalancing the role of the state and private sector in economic activities.
Concept and Importance of Debt Swaps
Debt-for-development swaps convert external debt service obligations into domestic development investments—offering financial flexibility and supporting sustainable development while easing fiscal pressure.
Egypt–Germany Debt Swap Program (2011–2025)
The longest-running and most successful, totaling €297 million. Focus areas include:
Renewable energy
Technical and vocational education
Sustainable development
Climate change mitigation
Ras El Hekma Deal with UAE (2024)
A game-changing $35 billion transaction involving:
$24 billion in direct investment
$11 billion converted from Emirati deposits into equity
Development of Ras El Hekma as a tourism and business hub
Egypt retaining a 35% stake in the project
China Debt Swap Program (2023–2025)
The first of its kind with China’s Development Cooperation Agency, worth $400 million, targeting infrastructure and development projects.
Italy Debt Swap Program (2020–2024)
A $150 million agreement supporting social and development initiatives.
Sustained Economic Recovery
Egypt’s GDP growth rebounded from 2.4% in FY 2023/2024 to 4.77% in Q3 of FY 2024/2025—the highest quarterly growth in three years—driven by:
Non-oil manufacturing expansion (7.1% in Q1 and 17.7% in Q2)
18% growth in tourism
10.4% growth in ICT
Recovery in service and production sectors
Inflation Reduction
Inflation declined from a peak of 38% in September 2023 to 13.9% in April 2025—a 24.1 percentage point drop.
Private sector investment surged from 38.5% in Q1 FY 2023/2024 to 62.8% in Q3 FY 2024/2025, reflecting:
Improved business climate
Reduced state dominance
Increased private sector confidence
Greater access to bank financing
External Debt Trends
Egypt’s external debt reached $155.2 billion by September 2025, a modest increase from $152.9 billion in June. However, the debt-to-GDP ratio declined from its peak of 42.6% in 2023 to 39.9% in 2025.
Debt Service Management
In 2024, Egypt repaid $38.7 billion in external obligations, including $21.3 billion in H1 FY 2024/2025—demonstrating its commitment to honoring debt repayments and maintaining creditworthiness.
Subsidy Reform
The government faced significant resistance in reforming subsidies, especially on bread, which benefits around 70 million Egyptians. In June 2024, the price of subsidized bread was raised from 0.05 to 0.20 EGP for the first time in three decades.
Social Safety Net Enhancements
To cushion vulnerable groups, the government:
Raised the public sector minimum wage to EGP 7,000/month
Expanded direct cash transfer programs
Supported low-cost food markets
Improved subsidy targeting systems
In July 2025, the IMF announced it would merge Egypt’s fifth and sixth reviews into a single review scheduled for Fall 2025. The decision aims to provide Egyptian authorities with more time to implement structural reforms—particularly in public asset management and the State Ownership Policy.
By July 2025, Egypt had recorded key fiscal and monetary milestones:
Achieving a strong primary surplus
36% growth in tax revenues
Rise in foreign reserves to $47.4 billion
Relative exchange rate stability
The tax relief initiative generated EGP 54.76 billion in newly disclosed taxes, with over 450,000 new or amended tax filings submitted.
Renewable Energy
Debt swaps—particularly with Germany—helped advance green energy projects, including:
Grid integration of ACWA Power wind farms (1,100 MW capacity)
€86 million allocated for clean energy initiatives
Support for the “Novi” Climate Action Program
Technical Education
Key outcomes include:
25 new Egyptian Centers of Excellence
€32 million grant for vocational education
Tailored training programs aligned with labor market needs
External Risks
Geopolitical tensions impacting Suez Canal operations
Global commodity price volatility
Weakened external demand from key markets
Risk of volatile capital flows
Domestic Risks
Need to accelerate structural reforms
Managing social expectations
Improving business environment and competition
Developing banking and capital markets infrastructure
Economic Growth
International institutions project 4.5% GDP growth for Egypt in FY 2025/2026—driven by recovering private consumption and investment. Growth is expected to gradually rise to 4.7% by 2026.
Debt Reduction Targets
The government aims to cut public external debt by $1–2 billion annually and reduce public debt-to-GDP below 80% by FY 2026/2027.
Private Sector Development
The target is to raise private investment contribution to 65% by 2030 (up from 62.8%). Achieving this requires a better business climate and effective implementation of the State Ownership Policy.
Key Achievements
Macroeconomic Stability: Inflation fell from 38% to 13.9%, and growth rose to 4.77%.
Structural Shift: Private sector investment surged to 62.8%.
Innovative Financing: Over $36 billion mobilized through debt swaps.
Fiscal Strengthening: Improved reserves and financial position.
Ongoing Challenges
Structural Reforms: Accelerate public asset policy implementation.
Social Equity: Ensure fair distribution of growth benefits.
Environmental Sustainability: Balance development with ecological preservation.
Global Competitiveness: Strengthen Egypt’s position in international markets.
To sustain these gains, Egypt should:
Accelerate Structural Reforms: Especially in public asset policy and business climate enhancement.
Promote Financial Inclusion: Broaden access to financial services for all social groups.
Invest in Human Capital: Upgrade education and vocational training to match market needs.
Diversify the Economy: Reduce reliance on traditional sectors and foster new industries.
Expand Global Partnerships: Extend debt swap deals to more countries and institutions.
Egypt’s experience with debt swaps and IMF-backed reforms provides a model for emerging economies—demonstrating how financial innovation and disciplined reform can transform challenges into opportunities for sustainable growth. With continued commitment to reform, transparency, and good governance, Egypt is poised for a strong and resilient economic future.
Dr. Ahmed Mohamed El-Imam
Economic Advisor
Experts Path for Business Development
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