The sustainability of public debt in Egypt: An analysis using the DIGNAR model

Abstract

: Over the past decade, the Egyptian government has grown increasingly concerned about the sustainability of its public debt. This study examines the sustainability of Egypt’s public debt using various indicators. The DSF indicators showed contradictory results, as most external public debt showed weak ratings that allow more borrowing capacity. However, the debt service on external debt to exports was already high in 2022 and 2023. Moreover, the study applies the Debt, Investment, Growth, and Natural Resources (DIGNAR) model, which relies on the IMF projections to quantify the impact of changes in exports and private remittances from 2019 to 2026 on Egypt’s public debt, assuming all other exogenous variables remain constant. The findings reveal a significant effect of changes in exports on changes in total public debt, domestic debt, and external commercial debt. Since the projections of the IMF show slight changes in private remittance, the researchers attributed the change in public debt to the change in exports. According to the DIGNAR results, the change in total public debt to GDP, domestic debt to GDP, and external commercial debt to GDP are expected to decrease by 2.6%, 1.6%, and 1%, respectively. Consequently, the study proposes several policy recommendations to enhance the sustainability of Egypt’s public debt. These include reducing debt services through debt restructuring and debt swaps, minimizing stock-flow adjustments, curbing inflation, and focusing on infrastructure investments with high returns. The findings of the DIGNAR model also confirmed the importance of promoting exports, which necessitates encouraging industries as the highest priority.