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Egypt considering $1.5 bn foreign bonds as it repairs economy: Minister

Reuters, Friday 24 Oct 2014
Hany Kadry
Egypt's Finance Minister Hany Kadry Dimian (Photo: AP)
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Egypt could tap international bond markets to raise up to $1.5 billion next year to shore up its finances and is open to agreeing an International Monetary Fund loan package if needed, Finance Minister Hany Kadry Dimian said on Thursday.

The Arab world's most populous country has been trying to repair an economy battered by political upheaval, street protests and militant violence since a popular uprising toppled autocrat Hosni Mubarak in 2011.

President Abdel Fattah al-Sisi's government has started implementing politically sensitive economic reforms such as slashing energy subsidies and raising taxes in a bid to narrow the budget deficit and gain the confidence of foreign investors.

Billions of dollars in grants, loans and petroleum products from Gulf Arab allies who backed Sisi's ouster of President Mohamed Morsi of the Muslim Brotherhood last year have kept the economy afloat and given the former army chief room for maneuver.

"We are bringing the economy to the point of a strong take off and we are starting to see the signals," said Dimian in an interview for the Reuters Middle East economic summit.

"It's a very difficult situation and our starting point is not an easy one but our main mission in this government is to rebuild the confidence in the Egyptian economy."

Dimian said initial economic reforms had gone smoothly but acknowledged that Egypt may need to seek foreign borrowing.

"We are open to all different sources of financing with the magnitude that we choose and with the assessment to the appropriate timing that we can get into the market or to have access with the IMF," said Dimian.

"I think we will go first to the international markets before tapping IMF resources. That would depend again on whether we have a guarantee or we just go on our own.

So if we go on our own I expect that we will be ranging between $1 to $1.5 billion as a first batch and this is to test the markets." Moody's raised Egypt's credit ratings outlook to stable from negative on Monday, citing a more stable political and security situation and signs of economic recovery.

A constitutional referendum in January and presidential elections in May this year, with parliamentary elections likely to be held by early 2015, had provided a reform roadmap and led to greater institutional stability, Moody's said. Egypt's economic outlook has brightened in recent months.

The economy grew 3.7 percent year-on-year in the fourth quarter of the fiscal year that ended in June, up from 2.5 percent the previous quarter. More recent economic indicators have pointed to a sequential pick-up.

"I saw that Moody's have changed their outlook from negative to stable and I see it as quite insufficient to read the real situation of the Egyptian economy and they are still lagging behind the curve," said Dimian.

He predicted that over the next four or five years Egypt's budget deficit will ease to 8-8.5 percent of gross domestic product, after an initial target of 10.5 percent for 2014/15.

"For next year, there will be very little decline and a rigidity because I have a constitutional obligation to increase spending on (the) health sector and education services and almost double them, and bring them up to 10 percent of GDP by the year 16/17," said Dimian.

HOPEFUL OF BIG INVESTMENTS

Egypt introduced painful cuts in July, slashing energy subsidies by 40 billion Egyptian pounds ($5.6 billion), which triggered steep rises in the price of fuel and electricity.

Fuel subsidies have in recent years cost Egypt's government around $15 billion a year, a fifth of the state budget.

The government has also introduced new taxes including a temporary, additional 5 percent tax rate on the wealthy over three years as it seeks to shore up its finances.

Dimian said the government plans to impose a value-added tax during the fiscal year that ends next June.

"We have a timeline. We are working on it. Just after this interview I am having a big meeting with the sales tax authority and the Egyptian tax authority ....," said Dimian. "And very soon we will start to roll on social dialogue with the different interest groups. It's a bit early to give you an exact date."

A senior technocrat appointed to the finance ministry in 2007, Dimian worked alongside five finance ministers following the 2011 uprising that deposed Mubarak.

Dimian was the crucial point man in Egypt's negotiations with the IMF during Mursi's rule. Mursi failed to secure a $4.8 billion IMF loan while in office and was unwilling to impose the unpopular reforms that Sisi has set in motion.

Egypt hopes an economic summit in the Red Sea resort town of Sharm el-Sheikh in February will persuade investors that it offers stability and plenty of opportunities in a region gripped by war and Islamist militancy.

Dimian said he expected Egypt to sign investment deals worth about $5 billion ahead of the event.

"We will be offering very attractive projects in a broad spectrum of sectors, be it in water desalination, in agriculture in the industrial sector or its sub sectors, be it in services such as river freight and transportation, in roads, in infrastructure like water treatment and solid waste treatment," he said.

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