Fiscal and Public Debt Sustainability in Egypt

Abstract:
This paper assesses the sustainability of public debt in Egypt in light of fiscal trends in recent years. It analyzes the key fiscal variables underlying recent growth in public debt, explores whether this debt is structural or cyclical, and simulates the debt-output trajectory based on different assumptions in key macroeconomic variables. The paper draws four main conclusions. First, Egypt presently has a high debt-output ratio compared with a sample of lower-middle income countries. Second, the debt is being driven by structural rather than cyclical factors. Third, the structural weaknesses of the budget are mainly related to low tax buoyancy and yields as well as to rising wage and subsidy expenditures. Finally, simulation results suggest that fiscal adjustment is needed to restrain debt growth and to achieve greater sustainability.