Welder at work
Courtesy Embassy of Egypt, Washington

Egypt's borrowing began on a modest scale in the early 1960s after the depletion of reserves. In 1970 long- and medium-term public loans (no figures were available for private loans) totaled US$397 million. Lending to Egypt rose rapidly after the mid-1970s. Up to 1978, loans came largely from Arab oil-producing states, which lent an average of more than US$950 million annually from 1975 to 1978. During this period, the government was also receiving loan commitments from OECD countries and multilateral organizations. These exceeded US$1 billion in 1976. By 1977 loans reached more than US$2.3 billion. (Unless otherwise stated, all loan figures in this section are equal to disbursements minus repayments and include public as well as private lending.) The figure fell to US$1.7 billion in 1979, because of the cessation of Arab aid. Since then most lending has been underwritten by OECD nations. Between 1979 and 1985, Egyptian borrowing ranged annually between less than US$1.4 billion and slightly more than US$1.8 billion, with an average of more than US$1.6 billion. Until 1985 external borrowing was thus the chief source for financing the current account deficit.

The situation was dramatically reversed in 1986, and annual loans in that year and in 1987 amounted to less than US$0.70 billion. This coincided with lower oil income, and was the opposite of what happened in the mid-1970s when oil prices as well as lending rose. By 1986 Egypt faced serious debt problems and was negotiating with the IMF and other creditors on debt payments and rescheduling as well as on economic restructuring. The creditors were reluctant to continue providing credit unless an agreement were reached with Egypt on these questions.

Interest rates on foreign economic loans fluctuated. The nominal rates for civilian loans ranged between 5 percent and 6.5 percent, averaging 5.6 between 1981 and 1988. The real rates were much lower, amounting to an average of 0.4 percent over the same period. Interest on military loans was, by agreement, fixed at 12 percent to 14 percent.

Repayments increased steadily. From US$764 million in 1977, they rose to their highest level of about US$1.54 billion in 1985 at the rate of 9.1 percent per annum. This meant that the actual amount of funds injected into the economy did not rise in proportion to the increase in loan commitments.

When all the preceding sources of external finance--grants, direct investment, and loans--began to fall to levels insufficient to cover the current deficit, Egypt resorted to incurring arrears in payments to official creditors. The arrears were difficult to document because of the lack of data. According to one estimate, the arrears may have risen from US$131 million in 1981 to US$739 million in 1986. They fell after the May 1987 IMF agreement and the subsequent arrangement with the Paris Club (the informal name for a consortium of eighteen Western creditor countries) to reschedule Egypt's debt3f2 bts.

In addition to loans, Egypt was also able to obtain short-term, high-interest credits from firms that supplied commodities and services. Egypt had resorted to these credits since the mid-1970s when imports soared. Disbursements rose steadily and between 1983 and 1985 averaged about US$1.86 billion annually, ranking higher than economic grants. Repayments, however, did not keep up with disbursements and in the late 1980s fell into arrears. Repayment delays of up to eighteen months and more for supplier credits were reported. Because of these delays and the mounting overall debt, until the signing of the agreement with the IMF in May 1987, Western credit agencies were hesitant to offer cover.

Data as of December 1990