EXCLUSIVE- The Finance Ministry has the green light to open broad negotiations with foreign creditors to swap outstanding debt for investment, after receiving approval from cabinet, a government source tells EnterpriseAM. The move comes as policymakers race to finalize a comprehensive public debt strategy within days to address mounting pressure on state finances.

What pressures, you say? Interest payments are now consuming approximately 80% of state revenues this fiscal year, a second government source tells us. Total public debt stood at EGP 14.9 tn at the end of the last fiscal year in June, marking an over 15% y-o-y increase, with external debt standing at EGP 3.8 tn of the total, according to a government document seen by EnterpriseAM.

But there is a silver lining, with the debt-to-GDP ratio declining due to inflation and growth.

What’s next?

The cabinet’s mandate now allows the planning and finance ministries to engage directly with creditors — including through the Paris Club — to convert debts into long-term investment stakes in development projects. This fits into the broader public debt strategy, which aims to widen the debt market by diversifying the creditor base. The plan seeks to reduce reliance on traditional heavyweights by introducing new instruments, including a retail market for fractional bonds, sukuk, green bonds, and issuances specifically targeted at Egyptians abroad.

The IMF’s recent visit to the country may have something to do with the timing

This flurry of activity appears calibrated to address concerns raised behind closed doors by the IMF. While the government remains optimistic about passing the upcoming fifth and sixth program reviews, the fund has expressed dissatisfaction with Egypt’s current debt indicators, the second government source tells EnterpriseAM. The lender’s primary warning is that the current lack of fiscal flexibility threatens the state's ability to absorb future economic shocks or fund social development, necessitating the urgent shift toward debt swaps and new liquidity pools.

Madbouly sets the tone

The new debt playbook: Less borrowing, more swaps. The Madbouly government is trying to pivot the debt narrative from crisis management to asset monetization. In a rare opinion piece from Prime Minister Moustafa Madbouly out Thursday, the PM signaled that debt-for-investment swaps — where creditors trade debt for equity in state projects — will be the primary engine for driving the external debt-to-GDP ratio down to 40% by 2026.

Keep an eye out for an announcement of new measures to address our debt burden, which Madbouly said to expect within days.

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