Egypt’s foreign debt reached $92.6 billion by the end of June, recording “an increase of $13.6 billion, or 17.2 per cent, on the end of June 2017,” according to the monthly report published a few days ago by the Central Bank of Egypt (CBE).
A marginal part of the increase, the report said, was caused by a rise in the exchange rates of foreign currencies used in borrowing against the US dollar, accounting for $0.4 billion.
The bigger chunk of the increase, $13.2 billion, is the result of an increase in debt-servicing costs over the past year, including paid instalments of $11.1 billion and interest payments of $2.1 billion.
“The indicators show that the foreign debt-to-GDP ratio is 37 per cent, which is within the safe limits according to international standards,” the CBE said.
However, “international standards regarding the safe limits of foreign debt are not fixed. The term refers to what can be deduced when compared with foreign debt indicators of emerging markets,” Radwa Al-Swaify, head of research at Pharos Holding, a consultancy, said.
“A comparison such as this puts the foreign debt-to-GDP ratio of 50 per cent as the highest safe limit for foreign debt,” she added.
An analysis of the development of Egypt’s foreign debt-to-GDP ratio over consecutive years, and that of debt-servicing to imported commodities and services, points to a considerable rise in the foreign debt-to-GDP ratio, recording 37 per cent and up from 15.1 in 2014.
The foreign debt-servicing to total imports ratio almost quadrupled from 7.4 per cent in 2014 to 28 per cent in 2018.
Al-Swaify believes an important criterion for the safety of foreign debt is the ratio between short-term debt and total foreign debt, pointing out that “short-term debt is paid back within a year or less and bears more risks.
” She added that “it is vital, when evaluating foreign debt, to consider short-term debts which require urgent payment.”
A bulletin released by Mubasher Financial Services, a consultancy firm, reported a source at the Ministry of Finance as saying that the state might adopt a new system according to which government bodies would obtain prior permission from the ministry before acquiring domestic or foreign loans.
These would then be paid over four or five years, whether they are short or medium term, to decrease the number of short-term loans.
The government has set a ceiling for foreign borrowing at $16.733 billion for the current fiscal year, which ends in June 2019. $10.51 billion of this is to pay back foreign debt instalments.
The sum does not include a $3.3 billion Kuwaiti deposit that is due in 2018-19, according to Reuters, based on a government document.
Total foreign debt is expected to reach $98.863 billion during fiscal year 2018-19, according to the document.
The rapid increase in total foreign debt since 2014 points to the government’s choice of foreign borrowing to meet the rising costs of its foreign debt, against a backdrop of economic reforms to lower the budget deficit, Al-Swaify said.
Enterprise, an online news bulletin, reported one official, who did not give a name, as saying that the government was planning to issue Eurobonds worth $20 billion until 2022.
The Finance Ministry cancelled a five- and a 10-year treasury bond sale for a total value of LE3 billion last month, when banks and investors requested higher interest rates.
It was the fourth time the ministry had cancelled an auction on debt instruments as a result of high interest rates. Reuters reported two bankers as saying the banks and investors had demanded interest rates ranging from 18.5 to 19 per cent.
CBE data shows Egypt’s foreign debt-to-GDP ratio exceeded the expectations of the International Monetary Fund, set at 34.5 per cent for this year and based on the third revision of the loan deal signed with Egypt in November 2016 and released in July.
* A version of this article appears in print in the 1 November, 2018 edition of Al-Ahram Weekly under the headline: More foreign debt