| Privileged debt | £22,609,000 |
| Unified debt | 58,018,000 |
| Daïra Sanieh loan | 9,513,000 |
| Domains loan | 8,500,000 |
| ————— | |
| £98,640,000 |
The rate of interest was, on the Privileged debt and Domains loan, 5%; on the Unified debt and Daïra loan, 4%. Under this settlement the total annual charges on the country amounted to £4,500,000, about half the then revenue of Egypt. These charges included the services of the Privileged and Unified debts, the tribute to Turkey and the interest on the Suez Canal shares held by Great Britain, but excluded the interest on the Daïra and Domains loans, expected to be defrayed by the revenues from the estates on which those loans were secured. The general revenue of Egypt was divided between the bondholders and the government, any surplus on the bondholders’ share being devoted to the redemption of the capital.
The 1880 settlement proved little more lasting than that of 1876. After a brief period of prosperity, the Arabi rising, the riots at Alexandria, and the events generally which led to the British occupation of Egypt in 1882, followed by the losses incurred in the Sudan in the effort to prevent it falling into the hands of the Mahdi, brought Egypt once more to the verge of financial disaster. The situation was an anomalous one. While the revenue assigned to the service of the debt was more than sufficient for the payment of interest and the sinking fund was in full operation, the government found that their share of the revenue was altogether inadequate for the expenses of administration, and they were compelled to borrow on short loans at high rate of interest. Moreover, to make good the losses incurred at Alexandria, and to get money to pay the charges arising out of the Sudan War and the Arabi rebellion, a new loan was essential. On the initiative of Great Britain a conference between the representatives of the great powers and Turkey was held in London, and resulted in the signing of a convention in March 1885. The terms agreed upon in this instrument, known as the London Convention, were embodied in a khedivial decree, which, with some modification in detail, remained for twenty years the organic law under which the finances of Egypt were administered.
The principle of dividing the revenue of the country between the Caisse, as representing the bondholders, and the government was maintained by the London Convention. The revenue assigned to the service of the debt, namely, that derived from the railway, telegraphs, port of Alexandria, customs (including tobacco) and from four of the provinces, remained as before. It was recognized, however, that the non-assigned revenue was Provisions of the London Convention. insufficient to meet the necessary expenses of government, and a scale of administrative expenditure was drawn up. This was originally fixed at £E.5,237,000,[6] but subsequently other items were allowed, and in 1904, the last year in which the system described existed, it was £E.6,300,600. The Caisse was authorized, after payment of the coupons on the debt, to make good out of their balance in hand the difference between the authorized expenditure and the non-assigned revenue. If a surplus remained to the Caisse after making good such deficit the surplus was to be divided equally between the Caisse and the government; the government to be free to spend its share as it pleased, while the Caisse had to devote its share to the reduction of the debt. This limitation of administrative expenditure was the cardinal feature and the leading defect of the convention. Those responsible for this arrangement—the most favourable for Egypt that Great Britain could secure—failed to recognize the complete change likely to result from the British occupation of Egypt, and probably regarded that occupation as temporary. The system devised might have been justifiable as a check on a retrograde government, but was wholly inapplicable to a reforming government and a serious obstacle to the attainment of national prosperity. In practice administrative expenditure always exceeded the amount fixed by the convention. Any excess could, however, only be met out of the half-share of the eventual surplus reached in the manner described. Consequently, in order to meet new expenditure necessitated by the growing wants of a country in process of development, just double the amount of revenue had to be raised.
To return to the provisions of the London Convention. The convention left the permanent rate of interest on the debt, as fixed by the Law of Liquidation, unchanged, but to afford temporary relief to the Egyptian exchequer a reduction of 5% on the interest of the debt was granted for two years, on condition that if at the end of that period payment, including the arrears of the two years, was not resumed in full, another international commission was to be appointed to examine into the whole financial situation. Lastly, the convention empowered Egypt to raise a loan of nine millions, guaranteed by all the powers, at a rate of interest of 3%. For the service of this loan—known as the Guaranteed loan—an annuity of £315,000 was provided in the Egyptian budget for interest and sinking fund. The £9,000,000 was sufficient to pay the Alexandria indemnities, to wipe out the deficits of the preceding years, to give the Egyptian treasury a working balance of £E.500,000 and thereby avoid the creation of a fresh floating debt, and to provide a million for new irrigation works. To the wise foresight which, at a moment when the country was sinking beneath a weight of debt, did not hesitate to add this million for expenditure on productive works, the present prosperity of Egypt is largely due.
The provisions of the London Convention did not exhaust the restrictions placed upon the Egyptian government in respect of financial autonomy. These restrictions were of two categories, (1) those independent of the London Convention, (2) those dependent upon that instrument. In the first category came (a) the prohibition to raise a loan without the consent of the Porte. The right to raise loans had been granted to the khedive Ismail in 1873, but was taken away in 1879 by the firman appointing Tewfik khedive. (b) Next came the inability to levy taxes on foreigners without the consent of their respective governments. This last obligation was, in virtue of the Capitulations, applicable to Egypt as part of the Ottoman empire. The only exception, resulting from the Ottoman law under which foreigners are allowed to acquire and hold real property, is the land tax. (All taxes formerly paid by natives and not by foreigners have been abolished in Egypt, but the immunity described constitutes a most serious obstacle to the redistribution of the burden of taxation in a more equitable manner.)
From the purely Egyptian point of view the most powerful restriction in this first category remains to be named. In 1883 the supervision exercised over the finances by French and British controllers was replaced by that of a British official called the financial adviser. The British government has declared that “no financial decision shall be taken without his consent,” a declaration never questioned by the Egyptian government. This restriction, therefore, is at the same time the chief safeguard for the purity of Egypt’s finances.
In the second category of restrictions, namely, those dependent on the London Convention, were the various commissions or boards known as Mixed Administrations and having relations of a quasi-independent character with the ministry of finance. Of these boards by far the most important was the Caisse. As first constituted it consisted of a French, an Austrian, and an Italian member; a British member was added in 1877 and a German and a Russian member in 1885. The revenue assigned to the debt charges was paid direct to the Caisse without passing through the ministry of finance. The assent of the Caisse (as well as that of the sultan) was necessary before any new loan could be issued, and in the course of a few years from its creation this body acquired very extensive powers. Besides the Caisse there was the Railway Board, which administered the railways, telegraphs and port of Alexandria for the benefit of the bondholders, and the Daïra and Domains commissions, which administered the estates mortgaged to the holders of those loans. Each of the three boards last named consisted of an Englishman, a Frenchman and an Egyptian.
During the two years that followed the signing of the London Convention, the financial policy of the Egyptian government was directed to placing the country in a position to resume full payment of the interest on the debt in 1887, and The race against bankruptcy. thereby to avoid the appointment of an international commission. By the exercise of the most rigid economy in all branches this end was attained, though budgetary equilibrium was only secured by a variety of financial expedients, justified by the vital importance of saving Egypt from further international interference. By such means this additional complication was averted, but the struggle to put Egypt in a genuinely solvent position was by no means over. It was not until his report on the financial results of 1888 that Sir Evelyn Baring (afterwards Lord Cromer) was able to inform the British government that the situation was such that “it would take a series of untoward events seriously to endanger the stability of Egyptian finance and the solvency of the Egyptian government.” From this moment the corner was turned, and the era of financial prosperity commenced. The results of the labours of the preceding six years began to manifest themselves with a rapidity which surprised the most sanguine observers. The principal feature of the successive Egyptian budgets of 1890-1894 was the fiscal relief afforded to the population. From 1894 onward more attention was paid than had hitherto been possible to the legitimate demands of the spending departments and to the prosecution of public works. Of these the most notable was the construction (1898-1902) of the Assuan dam, which by bringing more land under cultivation permanently increased the resources of the country and widened the area of taxation.