In late November, Egypt’s House of Representatives approved the memorandum of understanding (MoU) for a new €4 billion loan from the European Union. The loan will be disbursed in tranches over two and a half years, concluding by the end of 2027.

Signed by the Egyptian President and EU leaders during the first-ever Egypt–EU summit held in Brussels on 22 October, the loan is part of the joint Strategic and Comprehensive Partnership announced in March 2024. During that announcement, the EU reaffirmed its commitment to supporting Egypt’s efforts to achieve macroeconomic stability and resilience through a €7.4 billion support package. This includes €5 billion in concessional loans under the Macro-Financial Assistance (MFA) mechanism (with €1 billion disbursed by the end of 2024), €1.8 billion in investment agreements, and €600 million in grants across various sectors - €200 million of which is earmarked for migration management.

The MoU for the €4 billion loan reveals that the financial package complements Egypt’s current credit facility program with the International Monetary Fund (IMF), aiming to address external financing constraints caused by the balance of payments deficit. Although the first loan agreement was announced in March 2024, some changes have occurred since then. However, these changes have not significantly altered the loan’s conditionality. The MoU emphasizes coordination with the IMF to implement structural reforms to which Egypt has committed, particularly exchange rate flexibility and reducing the state's role in the economy. While the conditionality aligns closely with the IMF’s approach, it adds detailed provisions, most notably the urgent privatization of water services.

The current loan will be disbursed in three tranches: €1 billion for the first, and €1.5 billion for each of the subsequent two. Each tranche is tied to structural reforms that the Egyptian government must implement. Under the MoU, the government is required to submit a “compliance statement”, after which the European Commission will assess Egypt’s adherence to the structural reform policy measures before releasing each tranche.

Political conditionality: The Egyptian exception

The EU’s MFA mechanism typically requires that the borrowing country meet certain preconditions: an active non-precautionary credit agreement with the IMF, a satisfactory track record in implementing IMF reforms, and respect for human rights and democratic mechanisms, including a multiparty parliamentary system and rule of law.

However, in Egypt’s case, the EU granted an unprecedented exception by removing the human rights respect from the preconditions. Instead, Egypt is only required to continue taking “concrete and credible steps” on human rights and democracy.

The MoU (which outlines Egypt’s reform obligations to qualify for the loan) provides another exception by omitting any commitments regarding these “concrete and credible steps” on human rights. Instead, it includes over 60 specific measures focused on financial and economic reforms, along with some social protection actions.

Similarly, the Summit Declaration issued in Brussels contained general references to shared commitments to democracy, rule of law, and human rights. It welcomed the “ongoing efforts to strengthen the rule of law according to international standards”. It further emphasized the continued dialogue and cooperation on “human rights for all in a comprehensive manner, with particular attention to people in vulnerable situations, including the rights of women and girls, and with a view to ensuring all rights, including freedom of expression, peaceful assembly and freedom of association, among others”. Additionally, the declaration vowed to “strengthen cooperation on inclusive, effective and accountable governance by supporting the ongoing policies to enhance public institutions and capacities to further develop inclusive policies, as well as to modernise public services, and combat corruption”. It noted that civil society “plays an important role in the implementation of our Association Agreement and partnership”. 

Economic conditionality: The same prescription for Egypt’s crisis

The current agreement mirrors the IMF’s diagnosis of Egypt’s economic crisis, particularly in its first pillar: exchange rate flexibility. This assessment overlooks the severe social costs of currency devaluation, which has deepened poverty and inequality. The lack of reliable data – due to the Egyptian government’s suppression of poverty statistics and poor-quality data on food security and inequality – makes it difficult to assess the true social impact of exchange rate policies.

Surprisingly, the EU requires Egypt to measure poverty through the Income, Expenditure, and Consumption Surveys, but limits data sharing to government bodies and selected international partners, without mandating public disclosure of the results, as was the case until five years ago, and as the IMF itself requires.

On tax revenue mobilization, the loan agreement focuses on increasing revenues without addressing the need for comprehensive tax reform. Egypt’s tax system remains heavily reliant on indirect taxes. True reform would involve reassessing income brackets, introducing a wealth tax, enforcing the long-delayed capital gains tax, and combating tax evasion and offshore havens.

Regarding public finance management, much remains to be done, especially implementing the principle of budget unity. Economic authorities’ budgets remain outside of oversight. Although a unified finance law was passed and praised by both the IMF and EU, it has yet to be implemented, and financial data from economic authorities remain excluded from the national budget.

In terms of social protection, the loan agreement adopts a quantitative approach, requiring the expansion of the number of beneficiaries from the Takaful and Karama cash transfer programs by adding 60,000 families in the second tranche and 90,000 in the third. It also mandates 20,000 microloans in the second tranche and 30,000 in the third, without addressing the quality or effectiveness of the Takaful and Karama programs or other microloan schemes.

Microloan programs in Egypt face serious challenges and often become predatory, trapping poor borrowers—mostly women—in cycles of debt. With no effective oversight of interest rates, these programs burden the poor rather than empower them. The Takaful and Karama programs also suffer from a lack of transparency and have never undergone a comprehensive, independent evaluation, despite being in place for over a decade amid rising poverty rates.

State withdrawal in favor of private monopolies

The MOU’s second pillar echoes the IMF’s emphasis on equal opportunities between public and private sectors. However, this assessment has been used in recent years to justify intensive asset sales under economic pressure. Some of these assets were sold from public companies in strategic sectors, without meeting the requirement of reducing the military’s role in civilian industries.

The MoU calls for reducing the state’s role in the economy by publishing databases of state-owned enterprises and monitoring reports on the “State Ownership Policy”—just as the IMF program requires. Yet, the lack of regular publication and detailed data renders these efforts superficial and bureaucratic. Asset sales or “partnerships” with select investors do not necessarily increase competition and may simply shift monopolies from the state to the private sector or to companies closely connected to the authorities. A clear example is the Eastern Tobacco Company deal, which restructured monopoly without opening the market.

Strengthening the Competition Authority is a positive step and one of the loan agreement’s conditions, but it still lacks institutional independence. Operating under executive control, the Authority cannot effectively addrress monopolistic practices, especially those involving military or security-affiliated companies or politically connected elites.

While the agreement praises amendments to the investment law and tax incentives for major investors, it ignores how these amendments have exacerbated inequality between large firms that benefit from exemptions and small businesses that face high operating costs, limited access to finance, and burdensome bureaucracy.

Green investment before environmental and social justice

The third pillar of the loan agreement presents a narrow vision of the green transition, overlooking Egypt’s socioeconomic context. While renewable energy is essential, large-scale projects funded by loans often add to Egypt’s debt burden. The MoU fails to recognize the potential of small and medium-sized local enterprises in this sector, which could drive technology transfer, local development, and sustainable job creation. Hence, the loan’s conditionality prioritizes attracting investment over environmental and social justice.

This contradiction is evident in the case of green hydrogen, where the government—backed by the EU—promotes export-oriented projects to Europe, driven by energy diversification plans following the Ukraine war. However, these projects do not aim to meet domestic needs or green Egypt’s polluting industries like fertilizers or cement. As a result, Egypt risks becoming a peripheral production site in Europe’s green energy chains, while its domestic consumption remains fossil-fuel dependent and its industries unable to transition.

The loan agreement also encourages private sector involvement in water projects, raising major concerns about the privatization of a vital public resource in a water-scarce country. Privatizing agricultural or drinking water services could increase prices and reduce access to water in poor areas, especially in the absence of effective accountability mechanisms, as global water privatization experiences have shown.

Additionally, the green transition conditionality includes a comprehensive assessment of Egypt–EU trade, particularly in high-emission sectors like cement, steel, aluminum, and hydrogen. Despite the anticipated impact of the EU Carbon Border Adjustment Mechanism (CBAM) tax on Egypt's exports to the EU, this perspective reflects a clear shortcoming. The proposed study aims to maintain the competitiveness of Egyptian exports, meaning that the primary motivation is not to reduce domestic emissions or improve the environmental performance of these polluting industrial sectors, but rather to comply with European market requirements and avoid losing export market share.

What Egypt needs instead is not a study on the competitiveness of its exports in European markets, but rather a green industrial policy that places climate justice, technology localization, and the protection of workers and the environment at the heart of the green transition.

The green transition conditionality reflects a continued technocratic approach to this critical pillar. Overall, the agreement reveals a vision of a “green transition” that is managed top-down, aimed more at reassuring donors than at expressing a genuine national development strategy. It lacks focus on the social dimensions of this transition, making it fair to say that the primary goal is to mobilize green financing—aligning with the Egyptian government’s outlook—rather than pursuing true climate justice or initiating a societal dialogue that includes historically marginalized stakeholders in Egypt, such as rural communities affected by climate change and small and medium-sized enterprises in the renewable energy sector.