Egypt: how and why a heavily indebted country in the 1980s emerged solvent

Author's Department

Economics Department

All Authors

Adel Beshai and Maryam Abouzeid

Document Type

Research Article

Publication Date

7-6-2022

Abstract

This article deals with Egypt's debt crisis experience of the 1980s, which marked its own place in history. By the 1980s Egypt had a savings-investment gap; an export import gap; and a gap between government revenue and expenditure. The textbook answer was the Washington Consensus. Towards the end of the 1980s Egypt's military debt plus an interest rate of 15 per cent put the country in a situation where it wanted the debt to be cancelled. The USA responded that debt forgiveness wouldn’t be possible given the laws of the land. However, with Egypt’s participation in the liberation of Kuwait from the invasion of Iraq, the USA could cancel the debt. After that, Saudi Arabia and Kuwait cancelled Egypt's debts to them. Other countries in Europe agreed, provided that Egypt would reach agreement with the World Bank and International Monetary Fund. Consequently, Egypt’s interest rates turned from negative to positive. Inflation fell from 22 per cent to 4.1 per cent, and the budget deficit fell to 0.6 per cent. Active negotiations of the Egyptian Ambassador, Mr El Reedy, fully supported by President Mubarak were key to this solution. This reflects the importance of having a multidimensional discussion when discussing the economic aspect of debt.

First Page

748

Last Page

757

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