Has Egypt joined Sri Lanka and other countries that have swapped their debts with China for their strategic assets? Although the Chinese Foreign Ministry denied any knowledge about it, a local news website Arabi21.com has reported that Cairo is in discussion with Beijing for swapping a part of the US$8 billion loan it took from China for properties like ports and airports owned by it.
The Egypt-based news website said the process of discussion between Egypt and China had begun in August 2022 when an Egyptian delegation went to Switzerland to meet with a Chinese delegation to negotiate swapping of Chinese debt on Cairo for strategic assets.
Arabi21.com has linked these negotiations between Cairo and Beijing with Egyptian President Abdel Fattah El-Sisi’s statement that he gave after then US House of Representative Speaker Nancy Pelosi’s visit to Taiwan in the first week of August last year.
Supporting the “One China” policy, he had said, “We do not want more global crises that may affect us all…In our foreign policy, we have a constant in our policy that does not change, and we are always keen to be supportive of regional and international stability.”
Over the past decade, external debt has piled on Egypt. By the end of March 2022, the North African country’s total external debt stood at about US $158 billion, said a World Bank report. China is Egypt’s fourth-biggest creditor with US$8 billion in outstanding debt, or about 5% of Cairo’s total external debt.
According to The Economist, since Russia invaded Ukraine, foreign investors fled risky assets in Egypt, forcing the country’s central bank to burn through its foreign reserves in a bid to keep the currency fixed against the dollar. It is said that investors withdrew about $20 billion from the Egyptian market around the time Russia invaded Ukraine last year on February 24.
The British weekly business magazine further said that Egypt’s expected current-account deficit and debt repayment over the next 18 months are roughly the same as its $33 billion forex reserves. Over 80% of the country’s total forex reserves are comprised of deposits from wealthy Gulf states.
However, the worrisome part of Egypt’s economic condition is that Pound, its currency, has fallen to record lows, while inflation has soared above 20%. Tens of millions of people, as per various media reports, are struggling to put food on their tables even as the private sector is grappling with foreign currency shortages.
Last year, the crisis-ridden Arabian country turned towards the IMF for the fourth time in six years for a bailout package. The IMF promised Cairo a $3 billion rescue package, though attached with heavy conditions. It called for critical structural reforms, including withdrawal of the state from assets it owned and gradual reduction in the military’s footprint across the economy. The Bretton Woods institution also asked Egypt to shift to a flexible exchange rate regime and slow implementation of public investment projects.
It is believed that Egypt’s move to swap its debt with China for strategic assets could be a part of its plan to disinvest state-backed assets. According to Arabi 21.com, Cairo has also offered to sell land, properties, and holdings in state-backed companies to the UAE, Saudi Arabia, Qatar, and Kuwait to help reduce debt it owed to several countries. In keeping with such moves, Enterprise. Press, the Egyptian business weekly outlet said the El-Sisi government finalised 66 mergers and acquisitions in the country in 2022 and majority of these were military deals.
The IMF has warned that Egypt would face a financing gap of around US$17billion over the next four years. By selling its state-backed assets, Egypt wants to mop up US$2 billion. In addition to this, it is gearing up to secure US1.1 billion from the World Bank, US$300 million from the African Development Bank and US$300 million from the Arab Monetary Fund.
Experts say Egypt’s offer to swap its debts with China and other countries for strategic assets is like what happened with Sri Lanka. In 2017, cash-strapped Sri Lanka handed over the southern port of Hambantota to China Merchants Port Holdings on a 99-year lease after Colombo could not pay back US$1.12 billion as the funding capital debt to the Chinese company. Since then, Sri Lanka is ingloriously quoted as a victim of China’s debt-trap diplomacy.
In Africa alone, there are as many as 22 countries with low-income status and they are already facing severe debt distress, said Chatham House. Between 2000 and 2020, as per Africa Daily, China extended loans totalling US$59.87 billion to African countries.
It was a leading creditor to Angola with US $42.6 billion loan, Ethiopia with US $ 13.7 billion loan, Zambia with US $9.8 billion loan and Kenya with US$9.2 billion loan. But with this, there is a glaring fact: Opaqueness remains at the centre of China’s offer of every loan to low income and poor countries. According to AidData, approximately 50% of China’s lending to African countries is not included in official debt statistics. Besides, loans provided to African countries by China tend to come with higher interest rates compared to loans from the IMF, the World Bank or individual countries like the US, Japan or European Union countries. China offers loans at around 4%, and they are close to commercial market rates.
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