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Egypt’s long-standing structural imbalances
Historically, Egypt has spent more than it has earned. Starting from 2009, a current account deficit has been ongoing, strengthening its reliance on inflows of external capital. The surge is dramatic: between 2015 and 2023, external debt quadrupled, reaching over $160 billion. As a consequence, debt-service costs rose. Interest payments and repayments drained foreign exchange reserves, weakened financial stability and hindered development. On top of this, the structural reliance on foreign inflows of goods and capitals has exposed the country to greater fiscal pressure after the breakout of regional tensions.
In the aftermath of the COVID-19 pandemic, the 2022 large-scale invasion of Ukraine severely impacted wheat, energy and fuel prices. Being one of the world’s largest wheat importers, and relying on gas imports, Egypt’s import bill grew consistently. As global interest rates rose and risks increased, foreign investors pulled money out. In the same year, around $20 billion in bond investments left the country. Likewise, the war in Gaza triggered tensions in the Red Sea, significantly cutting the Suez canal revenues, major source of hard, foreign currency.
Between 2022 and 2023, the currency was devalued three times, nearly halving its value. Delayed post-covid inflation, peaking at 38% in September 2023 and rising imports cost forced Egypt to turn to the IMF.
IMF loan agreement
In December 2022, the IMF Executive Board approved a $3 billion Extended Fund Facility (EFF), later expanded to $8 billion in March 2024. The footprint of IMF agreement is grounded in a flexible exchange rate regime, monetary policies to reduce inflation, and fiscal consolidation to ensure downward public debt trajectory while keeping safety nets (Takaful and Karama cash transfer programs).
The IMF program stalled out in 2023, when Egypt was accused to not implement deep-seated reform. Egypt stepped back from keeping its pound at a tightly managed rate and delayed privatization plans. A point of concern is the opaque role of the military; Military-owned companies are reluctant to be privatised. The regime is split in two halves: while the military has the most to lose from privatisation, the president needs to keep the regime united behind him.
The turning point came with the $35 billion Ras El-Hekma investment from Abu Dhabi’s ADQ. The massive inflow of foreign currency gave Egypt the breathing room it needed to float the pound in March 2024. Once that happened, the IMF reviews moved forward and the program was expanded from$3 billion to$8 billion.
Nonetheless, in the third quarter of 2025, Egypt’s debt amounted to $163 million.
Debt swaps as a central policy instrument
Debt swaps are strategic financial agreements between a government and its creditors to replace existing sovereign debt with one or more liabilities that entail a spending commitment towards the development of domestic projects. In simple words, it is a mechanism that transform foreign loans into capital. The conversion of foreign debt into domestic spending alleviates the debt-service burden. By by converting foreign debt into domestic spending in local currency, the debtor government reduces the “dollar burden” and preserves scarce foreign currency reserves needed for strategic imports like food and fuel.
Debt swaps are not a new instrument. Egypt has a 20-years long-standing history with “debt-for-development” swaps. Since the 90s, external debt have been redirect toward local priority projects. Italy and Germany have carried out approximately $720 million for 120 developmental projects.
Germany planned a Debt Swap Program, spanning from 2011 to 2025, worth £240 millions. Started in the in the aftermath of the 2007-financial crisis, the emphasis was given to job creation and private sector competitiveness support. In recent times, in light of the urge to climate adaptation and mitigation measures, the program shifted to a “the “debt-for-climate swaps”, with the commitment of Germany to upgrade the transmission network for the integration of 1,200 MW of new wind power. Out of the €254 million in total investments, €54 million consisted of debt swaps.
On its side, Italy has implemented three distinct phases of debt swaps with Italy, signed in 2001, 2007, and 2012, with a total value of $
350 million, spanning from food security, education and environmental protection.
The Ras El-Hekma deal
The centrepiece of Egypt’s economic strategy is a $35 billion investment deal led by the Abu Dhabi-based investment and holding company, ADQ. The largest foreign direct investment and debt relief includes $24 billion for Ras El-Hekma development rights to transform one of the last untouched spots in the Mediterranean into a massive “next-generation” city spanning 170 million square meters.
A key part of the deal involves the conversion of $11 billion UAE deposit at Egypt’s central bank into local currency for investment in prime projects across the country. This process reclassifies money, originally owed back to the UAE, into a “pure cash position” that carries no debt burden. It implies a first tranche of $5billion, and a second of $6 billion, erased from from Egypt’s foreign debt books, providing immediate relief to the state’s ballooning liabilities.
Ras El-Hekma is a clear move within Egypt’s broader strategy of restructuring required by IMF reform recommendations. The deal represents a a massive economic bailout to successfully finalize the larger $8 billion loan program. But, at what cost?
Egypt’s bailout?
Without the UAE’s investments, Egypt could have never unlocked additional support from IMF, WB, and the EU. Egypt was pushed by Gulf states to accept IMF’s conditions, especially to have returns on the privatization wave. The financial relationship born in 2013 as an unconditional “brotherly” aid, in the form of direct grants, central bank deposits and soft loans, nowadays has become a rigorous, market-driven investment model. What emerges is the perception that Egypt, despite the claimed returns, is selling out piece by piece its territory and strategic asset to the Gulf neighbours.
The presence of the wealthy Gulf States is not limited to the Ras El-Hekma project. Over the years, Egypt has secured foreign direct investment from the aforementioned countries to tackle foreign debt and budget deficit.
Already in 2008, under President Hosni Mubarak, a deal was sealed between the New Urban Communities Authority and Talaat Moustafa Group, where a 8,000 acres urban land was sold to the latter to develop the Madinaty project, a $3 billion residential city, then annuled. Again in 2017, Egypt sold two strategic Red Sea islands, Tiran and Sanafir, to Saudi Arabia, and protests erupted.
Abu Dhabi’s ADQ and Saudi Arabia’s Public Investment Fund together invested around $3.1 billion to acquire significant minority stake in some of Egypt’s strongest listed companies. These acquisitions include 41.5 percent of Abu Qir Fertilizers Company and 45 percent of MOPCO. ADQ has also become the largest private shareholder in Commercial International Bank after purchasing a 17.5 percent stake for $911.5 million. Meanwhile, the Saudi fund holds a 25 percent stake in the state-founded digital payments firm eFinance and has entered negotiations to acquire United Bank of Egypt.
Concluding remarks
Egypt’s stabilization strategy today rests on three pillars: IMF-backed reforms, Gulf-led strategic investments, and selective use of debt swaps. In this environment, debt swaps function as a kind of lifeline, yet, besides providing short-term liquidity relief and prevent default, they are insufficient to address the magnitude of the crisis.
Egypt’s temporary bailout has come at cost of foreign ownership in strategic sectors and prime territory. The Ras El-Hekma case, in particular, represents what is effectively the sale of a piece of national territory, justified and made possible only by Egypt’s current position of weakness. The economic outlook does not bode well for the stability of the government itself. As previously noted, the stalemate between IMF-imposed structural reforms and the need to secure the support of the military places President al-Sisi in a tightening bind.
In the near future, political turbulence and shocks to the central government should not be ruled out. There has already been speculation in some Saudi media about the possible fall of the al-Sisi regime in 2026, sparking considerable reactions. Could this indeed be the case?
Questions
- Can Egypt realistically implement IMF-mandated structural reforms without destabilizing the very political coalition that sustains the current regime?
- Does the Ras El-Hekma deal represent a pragmatic bailout strategy necessary to prevent default, or does it signal a longer-term erosion of economic sovereignty through the transfer of strategic assets to external actors?
- To what extent do debt swaps and Gulf-led investments provide genuine economic stabilization for Egypt, and to what extent do they deepen structural financial and political dependence under the IMF framework?
Reading suggestions
- The Tahrir Institute for Middle East Policy. (2024, March 12). Understanding Egypt’s Ras al-Hekma land deal: No panacea
- Zawia3. (2024, July 8). Does Egypt Sell Gabal El-Zeit Wind Farm Below Cost?
- BBC News. (2017, January 16). Why Egypt is giving away two Red Sea islands to Saudi Arabia.
image sources
- rs=w_649,h_325,cg_true: Rasalhekma.com/about
- ali-othman-7z-qKf7lzxQ-unsplash (1): Unsplash | CC0 1.0 Universal
