By Saifedean Ammous

A glance at Egypt’s public finances reveals a disturbing fact: The interest that the country pays on its foreign loans is larger than its budget for education, healthcare and housing combined. Indeed, these debt-service costs alone account for 22 percent of the Egyptian government’s total expenditures.

The impact has become impossible to ignore. With growing political uncertainty and a slowing economy, Egypt is likely to witness decreasing government revenues, increasing demands for urgent spending and rising interest rates on government borrowing. This could lead to a fiscal catastrophe for the government at the very moment when the country is attempting to navigate through a complicated political transition.

Egypt’s public debt is around 80 percent of GDP, very close to the 90 percent level that economists Kenneth Rogoff and Carmen Reinhart identify as a harbinger of slower growth and heightened vulnerability to financial and fiscal crises. Egyptians need only glance northwards, at the debt crisis in the EU, to understand they should sort out their debt problem now, rather than waiting until it reaches the proportions currently faced by Greece.

This debt was incurred during the 30-year reign of the deposed president, Hosni Mubarak. In international law, debt that is incurred without the consent of the people, and that is not used to their benefit, is referred to as an “odious” debt. As such, it is not considered transferable to successor regimes. The reasoning behind this is both simple and logical: If someone fraudulently borrows money in my name, I am not expected to pay it back, and neither should a country’s population when an unrepresentative leader borrows in their name and in a way that ends up being to their detriment.

For three decades, Hosni Mubarak’s borrowing only enriched him and his ruling clique while impoverishing and repressing the rest of Egyptian society. Corruption was rife, but not just the type that was hidden: Public money was openly used to support many businesses under flimsy pretexts such as the fact that there were necessary to “foster economic growth” and “create employment.” Along with regulatory capture, these methods harmed competitiveness, market openness, and Egypt’s small and medium-size businesses.

The beneficiaries of this largesse are now mostly sitting in prison awaiting trial. The rest of Egypt, however, only felt this money in the form of an ever-expanding state apparatus that solidified Mubarak’s rule, crushed dissent, and repressed millions of people. When Egyptians rose up against the president last January, they were confronted by weapons paid for with borrowed money.

Is it fair to expect Egyptians to continue paying for their previous repression and impoverishment at the hands of Hosni Mubarak and his cronies? Since this money clearly benefited the president but not his people, should it not be Mubarak, rather than his victims, who is held responsible for the debts incurred?

The type of regime Hosni Mubarak was running had been clear for many years, and it was also clear how the money was being used. A prudent lender should have considered these facts before making the loans to the Egyptian government. So the banks and international institutions that lent money to Mubarak should also bear the responsibility of having chosen to bankroll his repressive regime.

Egypt should make a clean break with Mubarak and his creditors, and let them sort out their business among themselves without, at the same time, involving the Egyptian people. The Egyptian government’s only role should be to help liquidate Mubarak’s assets for repayment, should the need for this arise.

Such a measure would be not only fair, it also would teach an important lesson to all those who bankroll dictators – a lesson that is likely to have an immediate positive impact worldwide. Lenders to a repressive regime will no longer expect these debts to be repaid by the successors of these regimes, immediately making lenders worldwide more careful about lending to repressive leaders.

An Egyptian precedent would bring awareness and sobriety to a generation of lenders that is not accustomed to considering this type of risk, and that may even be unfamiliar with the doctrine of odious debt. Repressive regimes would find it harder to borrow, which would, in turn, make it harder for them to repress their people, and make it easier and cheaper for responsible and legitimate governments to secure funding when they need it.

Transferring liability for foreign debt to Hosni Mubarak should not have negative economic consequences for Egypt in the long run. This move should not be understood as a move toward fiscal recklessness, but as a one-time break from it. With a smaller debt burden and lower interest payments, Egypt’s fiscal position would improve significantly, and threats to economic growth would recede. The resulting caution of foreign lenders would prevent future Egyptian governments from irresponsibly saddling their populace with debt.

Perhaps most importantly, the days of borrowing to build a large state security apparatus would be gone for good – and worldwide. For the sake of Egyptians and that of people living under tyranny everywhere, Egypt’s government must take a brave stand.

Saifedean Ammous is a visiting scholar at at Columbia University and a lecturer in economics at the Lebanese American University. THE DAILY STAR publishes this commentary in collaboration with Project Syndicate © (www.project-syndicate.org).