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International Journal of Business and Economics

International Journal of Business and Economics
Volume 23, No. 3

December, 2024
 
Fiscal Sustainability: The Case of Egypt
 
Ibrahim L. Awad
Department of Finance and Economics, College of Business and Economics, Qatar University, Qatar
 
Abstract
The existence of a chronic budget deficit, along with an unprecedented increase in Egypt's foreign debt over the past ten years, has raised growing concerns about the fiscal sustainability of Egypt. This paper examines Egypt's fiscal sustainability under various hypothetical scenarios, including; (i) the scenario where a predetermined debt-to-GDP ratio of 60% is maintained, (ii) the scenario in which the country's budget deficit transforms into a surplus, and (iii) the scenario of an Islamic rule in which the negative real interest rate is adjusted to zero. The study examines the fiscal sustainability of Egypt using the framework proposed by Enzo and V. Hugo (2003). The framework assumes a targeted debt-to-GDP ratio and suggests that the government should respond when the actual debt-to-GDP ratio exceeds the targeted ratio. The main findings of the study are as follows; (i) Egypt's current fiscal position of debt is unsustainable. (ii) Setting a target for the debt-to-GDP ratio of 60% does not improve fiscal sustainability. (iii) Fiscal sustainability can be realized by transforming the existing budget deficit into a surplus. (iv) Fiscal sustainability is attainable with a predetermined debt-to-GDP ratio of 60% and a corresponding targeted primary deficit-to-GDP ratio of 4% to 5%. (v) Fiscal sustainability can be attained with a targeted debt-to-GDP ratio of 60% and a corresponding targeted primary deficit-to-GDP ratio of 2.5%, provided that an Islamic rule of a zero limit on the real interest rate is implemented.
 
Keywords:Fiscal Sustainability, Sovereign Debts, Fiscal Policy
 
JEL Classifications:H6, E620, E630
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