Governance in the Grip of Debt

[Jason Beckett is an associate professor of law at the American University in Cairo]

Introduction

The Egyptian Initiative for Personal Rights (EIPR) recently released an analysis of Egypt’s proposed budget for 2025-6, titled, “Egypt in the Grip of Debt”. It is a gloomy read, documenting Egypt’s ongoing immiseration, but concludes with a strangely sentimental optimism. “After all, the state’s role is not to help profitable actors further increase their profits.” (EIPR, 26) This, I will argue, is fundamentally untrue. In a neocolonial world gripped by neoliberal ideology, the states’ role is precisely “to help profitable actors further increase their profits.” 

In this post, I show how states and governments function within a tightly interlocked global economic system, which determines their conduct and their roles. Within this system, the national governments’ primary allegiance is to the market and the institutions which regulate it, not to their citizens. As the policy decisions imposed on governments impoverish the masses, the role of governance in under-developed states is to maintain order, not ameliorate misery. I will begin by sketching the functioning of this global system, then turn to Egypt to illustrate its workings in some detail. Finally, I will recontextualise Egypt, as one impoverished state among many, in a coercive global order.

(Neo)Colonial Global Governance

The global economic and legal system is not a co-operative venture from which all benefit, it is a coercively imposed system of quasi-legitimised economic exploitation. The world is governed economically, with debt used to discipline under-developed states into what is defined as economically rational behaviour. In this model, it is rarely economically rational to offer support to the native masses, and so social expenditure falls ever further. Despite (increasingly rare) lofty European rhetoric, the role of the under-developed state is not to respect and realise the human rights of its people. The government’s role is to maintain order amidst immiseration. This involves authoritarian and repressive governance, but comes with the promise that strict market discipline will lead to future development.

However, this very market rationality both entrenches social misery and precludes development. The term “developing states” is a misnomer, a euphemism deployed to mask this fact. In reality, there are no “developing states”, that is, no under-developed state is actually experiencing economic or social development. The global system, which I have elsewhere called the Global Legal Order (GLO), is structured to systematically plunder under-developed states, entrenching and deepening the dichotomy between them and the over-developed states. The GLO comprises the major global economic institutions, the IMF, the World Bank, the WTO, and the system of International Investment Arbitration. Unlike PIL, each branch of the GLO has its own enforcement mechanisms, and all four work in concert as an ideologically coherent legal system. It is the functional sovereign of the Global South. Managing a system of (often violent) economic exploitation and resource theft, while finding ways to justify that exploitation, or render it invisible, has been PIL’s role from its colonial beginnings to its contemporary neocolonial manifestations. The divide between under- and over-developed states is a product of centuries of colonialism, now re-established following the brief hiatus of the decolonisation period. It is currently maintained by a widespread institutional enthrallment with neoliberal ideology. This neoliberal ideology has further impoverished and immiserated the masses across the under-developed world. In this system, the over-developed states comprise approximately 15% of the global population, but account for 85% of global consumption. “High-income countries continue to consume materials at a rate six times greater than that of low-income countries.” This inequality is not natural, but the product of a system whose functioning can be seen in microcosm in the structure of Egypt’s 2025-26 budget.

Egypt Under the Rule of the GLO

Egypt has struggled with debt since at least the ill-advised construction of the Suez Canal, beginning in 1859. However, following its recent entanglements with the IMF, Egypt has rapidly become a highly indebted state; “loans … began to accumulate rapidly after Egypt signed its first loan agreement with the IMF in November 2016. Within a single year, external debt jumped from 16.6% to 33.6% of GDP, naturally leading to a rise in debt servicing costs in foreign currency.” (EIPR, 7-8) As a result, “Egypt’s external debt shows a sharp increase from $46 billion in June 2014 to $168 billion in December 2023, with its share of GDP rising from 15% to approximately 43% over the same period.” (EIPR, 8)

Despite being in the grip of debt, Egypt must continue to borrow to function, and “the 2025–2026 budget relies on a 186% increase in external borrowing compared to the previous year.” (EIPR, 8) The even deeper problem is that the “bulk of the new borrowing planned for the upcoming fiscal year is earmarked for repaying previous domestic and external loans – 58% of the new debt will go toward servicing old debt.” (EIPR, 9) As a result, “interest payments in the upcoming fiscal year will represent 73.7% of expected total public revenues”, “interest payments on domestic and foreign debt account for about 87% of the expected tax revenue in the new fiscal year”, (EIPR, 22) and “allocations for servicing principal and interest on both domestic and foreign debt alone constitute nearly two-thirds of total planned expenditures, at 64.8%.” (EIPR, 7)

In other words, Egypt is being asked to “develop” while 65% of its entire national budget goes on debt servicing. This is simply an impossible task, yet one commonly set for under-developed states. It is part of a global system in which the rich countries extract about 6 trillion USD per year (net) from the poor countries. An interminable system of debt peonage, under-development, and resource plunder. In Egypt’s case, which is not unusual, this new borrowing is used to offset the primary budget deficit. However, “in the new budget, the deficit is projected at approximately 7.3% of GDP, while interest payments are expected to reach 11.2% of GDP. This highlights the role of debt servicing in fuelling the deficit. Borrowing – typically justified as a means of covering the budget shortfall – has escalated to the point where interest payments alone exceed the size of the deficit.” (EIPR, 11) Put differently, “excluding interest payments, the budget would show a primary surplus of 4%.” (EIPR, 11) Egypt has been indebted into a deficit which now demands further debt to fill, creating a never-ending spiral of indebtedness. Rather than being able to prioritise development or poverty eradication, its “resources are instead funnelled toward banks and lending institutions, both domestic and international, whose profits continue to grow through this process.” (EIPR, 12)

Debt and Social Spending in Egypt

Prioritising debt repayment has very serious real-world implications, which we could summarise in a simple maxim: the rich get richer, and the poor suffer more to pay for it. This is the golden rule of neoliberal practice. In Egypt, “spending on servicing domestic and external debt has steadily increased over the past decade, [but] real-term expenditure on essential services – such as wages, healthcare, education, and social protection – has declined.” (EIPR, 4) In particular, “spending on education and healthcare as a share of GDP continues to decline.” (EIPR, 6) This is not wilful neglect by the authorities, but predetermined, externally-imposed, policy, demanded by the neoliberal international institutions, in a situation where “interest payments alone account for 11.2% of Egypt’s GDP, up from 10.7% in the current fiscal year. This share surpasses the combined allocations for wages, subsidies, education, and healthcare.” (EIPR, 10)

In brief, “education’s share of GDP continued to decline, reaching 1.54%”, “spending on health … maintained the same low share of GDP of 1.2%”, “subsidies as a percentage of GDP have dropped from 8% in the 2014/2015 fiscal year to 3.6% in the new budget.” (EIPR, 18) Public sector salaries account for a further 3.6% of government expenditure. (EIPR, 18) Between them, education, health, subsidies (e.g. welfare payments and food subsidies), and public sector salaries account for 9.64% of the budget. Although “food subsidy allocations increased,” “the increase is modest when compared to last year’s inflation rate, meaning the real value of spending on this item is lower than in the previous budget.” (EIPR, 19) Worse still, under IMF diktat, “any savings from these austerity measures have been redirected toward servicing public debt.” (EIPR, 18)  In a sign of neoliberal priorities however, “export promotion subsidies increased by 93.5% compared to the current fiscal year’s budget, following an 80% increase the year before.” (EIPR, 18)

Egypt, like most former colonies, is commanded to export its way to development while controlling a budget deficit created only by debt obligations. This means two things, selling off the state’s resources instead of using them to the benefit of citizens, and doing so cheaply. Egypt shipped US$38.8 billion worth of exported products in 2024, that amounts to a 32.5% increase compared to 2020, when Egyptian exports totalled $29.3 billion. (Ibid) A plurality, 34.7%, of all exports was sold to European importers. (Ibid) More importantly, Egypt does not export in high added value sectors, but rather in primary goods, or labour intensive and/or environmentally damaging production:

processed petroleum oils were the top Egyptian export (20.5% of total exports) during 2024. In second place was crude oil (5.1%) trailed by nitrogenous fertilizers (4.1%), unwrought gold (3.4%), insulated wire or cable (3.2%), hot-rolled or non-alloy steel products (2.4%), fresh or dried citrus fruit (2.2%), copper wire (2.1%), television receivers, monitors and projectors (1.7%), then unknitted and non-crocheted men’s suits and trousers (1.6%). (Ibid)

This is not, with the best will in the world, a high tech or advanced industrial economy, nor will it be allowed to become one. Egypt, like most under-developed states, is trapped in its current status as a deposit of cheap raw resources and native labour. It is run in the interests of its former colonisers, the Europeans, the USA, and, increasingly, the Gulf states. In economic desperation, and under IMF control, Egypt is reduced to selling off its own landmass to foreign states. 

Ras Al-Hekma, on the North Coast, was “one of Egypt’s few remaining unscathed heavens on the Mediterranean, boasting pristine turquoise water and white sandy beaches, foregrounded by lush olive and fig groves.” In 2024, it was sold to the UAE, as “governments in Cairo and Abu Dhabi signed a $35 billion partnership agreement to develop the 40,600-acre area”. (Ibid) The sale of Ras El Hekma may indicate the start of a trend. Now Qatar has announced it will invest $29.7 billion in a tourism and residential project in the Alam Al Roum area, also on Egypt’s North Coast. The project will span “4,900 acres… extending across a coastline of 7.2 kilometres of the pristine Mediterranean shoreline”, a statement from the Qatari Diar company said. (Ibid) Naturally, none of this coastline will be left accessible to those locals who will be displaced to make way for these projects.

Conclusion

Egypt provides just one example of a state being forced to adopt policies which further the contemporary form of enclosure and primitive accumulation that David Harvey calls “accumulation by dispossession”. This is a widespread practice, spanning from the gentrification or “AirBnB-isation” of cities globally, through the sale of public beaches in Italy, to the violently enforced displacement of the Maasai people in Tanzania, to make way for private game reserves. It is a global, legally regulated, process that moves natural wealth, indigenous land, publicly owned land, publicly accessible coastlines, into private hands, apparently in the name of development. Invariably, under the rule of the GLO, and across the under-developed states, the sales’ proceeds go toward temporarily alleviating debts, and the state as a whole becomes poorer. But then more debt is needed to keep the state functioning, and with that comes the imposition of more neoliberal reforms. The cycle continues, and the wheel of misery rolls on. Egypt’s behaviour is replicated across the under-developed states, because it is mandated by the GLO.

To state the obvious, the development industry is a sham, it functions to direct attention away from the causes of poverty, and the ways in which these are institutionally managed, structurally replicated, and violently imposed. (Hickel) It allows us to avoid looking at how national budgetary and policy decisions are predetermined by a global system that entrenches immiseration. Under-developed countries do not need aid, indeed they do not actually receive “aid” in any meaningful sense. The over-developed countries extract c. $6 trillion annually from their under-developed vassals; (Hickel) they return $200 billion (3%), call it “aid”, attach strings, and expect gratitude for it. Likewise, it is not in the interests of under-developed states to prostitute themselves in the race for FDI, but under GLO rule, they have no choice. Under-developed states don’t need aid, they need justice, debt forgiveness, control over their own resources, and a clean slate from which to begin their own economic development.