Dealing with the Increasing Public Debt in Egypt

Abstract

The objective of this paper is to identify the magnitude of the public debt problem in Egypt and to provide some guidelines for policymakers in dealing with the increasing public debt. In the paper, the issue of public debt is looked at as a result of the interaction of fiscal policy and the economic performance, and not as a statistical concept only. It consists of four sections and an introduction. Section (1) provides an identification of the magnitude of the public debt problem in Egypt. Section (2) presents a forecast of the level of public debt in Egypt till the year 2020 using a VAR model. Section (3) provides a forecast for the size of the public debt in Egypt under various scenarios where both economic growth and fiscal policy were considered. Section (4) summarizes the findings and policy recommendations that came out of this study.

The conclusions drawn from this research may be summarized as follows. (1) Based on the model used in the paper and public debt indicators, public debt in Egypt is expected to be sustainable till the year 2020. (2) Economic growth has a very strong impact on reducing public debt in Egypt. (3) Fiscal consolidation is very important in reducing public debt because of its impact on economic growth. However, in the process of fiscal consolidation, the Egyptian government has to consider rationalizing spending and not to cut investment spending.