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Egypt's foreign debt marked as safe

According to Central Bank of Egypt figures, Egypt’s foreign debt is well within safe limits

Safeya Mounir , Thursday 6 Feb 2020
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Egypt’s foreign debt rose to $109.4 billion by the end of the first quarter of the current fiscal year, recording an annual increase of 17.4 per cent, compared to $93.1 billion registered during the same period last year, recent figures released by the Central Bank of Egypt (CBE) showed.

The insurance costs of Egypt’s debt had improved, said Ahmed Kouchouk, deputy minister of finance for fiscal policies, last month at the Renaissance Capital Conference in Morocco. Insurance costs dropped to 315.8 basis points on debts maturing in 10 years, while those on debts maturing in five years fell to 257 basis points.

“The growth of foreign debt is starting to slow down. We don’t have a problem as long as the growth of foreign debt is slower than GDP growth,” said Radwa Al-Swaify, head of research at Pharos, an investment bank.

According to the debt strategy announced by the Ministry of Finance, foreign debt is growing at a faster rate than domestic debt because the interest on foreign debt is lower and the pound has appreciated against the dollar, Al-Swaify said, adding that the ministry’s target was to limit debt-servicing costs.

The dollar has depreciated against the pound since last year by 12 per cent, currently standing at LE15.75.

The Finance Ministry announced a plan last year to reduce the ratio of foreign debt to about 30 per cent of GDP by 2022. Safe limits for foreign debt range from 30 to 50 per cent of GDP, and therefore Egypt’s current foreign debt was within safe limits, said Mohamed Maait, the finance minister.

Kouchouk said the government had had to increase foreign borrowing to overcome the transitional phase of its economic reform programme in order to mitigate the effects of the floatation of the pound and to make more foreign currency available.

Nonetheless, the government was “keen to shoulder the debt as long-term soft loans at low interest rates,” he added.

According to the CBE, Egypt’s long-term foreign debt reached $98.329 billion and its short-term debt amounted to $11.033 billion at the end of the first quarter of the current fiscal year.

The government would not issue more Eurobonds until the end of this fiscal year and will instead depend on diversifying its debt instruments, Maait said. The CBE had issued Eurobonds worth $2 billion in three tranches in November at “very good yields”, he added.

For the remainder of the current fiscal year Maait said the government was likely to offer three types of bonds: sukuks or Islamic bonds, green bonds, and variable-yield bonds worth somewhere between $3 billion and $7 billion.

Green bonds are likely to come at the forefront of government issuances during the remaining six months of this fiscal year. A committee from the Ministry of Finance is currently studying sustainable social and environmental projects that will be linked to the green bonds, according to Maait.

The ministry also intends to rely on Islamic bonds, or sukuk, to cover financing requirements in the coming period.

MP Mohamed Fouad asked a question of Maait in parliament about the sustainability of Egypt’s debt, questioning the claim that Egypt ranked first worldwide in reducing its debt when the foreign debt was increasing.

He demanded that the government clarify its ability to pay off present and future debt servicing in a manner that would guarantee its ability to meet the requirements of investment and development.

*A version of this article appears in print in the 6 February, 2020 edition of Al-Ahram Weekly under headline: Foreign debt marked as safe

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