Egypt relisted in JP Morgan’s emerging market index ending 10 years of absence

Doaa A.Moneim , Monday 31 Jan 2022

Egypt was relisted on Monday 31 January in the JP Morgan Index for government bonds of emerging markets (GBI-EM), ending 10 years of absence .

Minister of Finance Mohamed Maait

The relisting of Egypt in the JP index came after three years of consultations, Minister of Finance Mohamed Maait announced in a statement.

This makes Egypt and South Africa the only two countries in the Middle East and Africa that are listed in this index.

Egypt was removed from the GBI-EM in June 2011 on the back of economic and political instability following the 25 January Revolution, which eroded the country’s ability to meet its requirements.

Egypt’s weight in the index is around 1.8 percent, representing 14 Egyptian government bonds with a total value of around $26 billion with an average yield of 14.9 percent and a maturity of 2.9 years, according to Maait.

Egypt also joined other indices of JP Morgan, including the GBI-EM Broad Diversified Index with a weight of 1.4 percent, the GBI-AGG Diversified Index with a weight of 0.24 percent, and the JESG Index with a weight of 1.1 percent based on Egypt’s green bond issuance.

The issuance of Egypt’s green bonds took place in 2020 and was the first of its kind in the Middle East and North Africa; it is part of the country’s Strategy for Sustainable economic development under Egypt’s 2030 Vision.

The minister said that this relisting confirms the confidence of the foreign investment community in Egypt’s improved foundations and that Egypt is being put on the international radar as an investment destination.

“Egypt joined the watch list of the JP Morgan Index in April 2021 as a preliminary step before being included in the index, whereby most investors surveyed by JP Morgan’s team during 2021 confirmed that they were able to access the market and transact bonds and foreign exchange without any hurdles,” the minister indicated.

As a result, 90 percent of investors in the consultation voted for the inclusion of the Egyptian market in the index, which came as another reassuring factor that Egypt is conforming to international standards, Maait explained.

According to the minister, $1 billion in new investments are expected to be pumped in the Egyptian governmental equity market as a result of the relisting.

He added that being included in the index is considered a milestone regarding debt management reforms.

He highlighted the ministry’s efforts to fulfil the requirements of being relisted, including reshaping the yield curve, extending debt maturity, and increasing the issuance size per auction, in addition to streamlining the process of taxation and applying double taxation rates.

For his part, Ahmed Kouchouk, the vice minister of finance for financial policies, expounded that Egypt’s economic reform programme has led to robust economic resilience and a notable improvement in key macro fiscal indicators that also enabled the country to meet the index inclusion requirements on the economic front.

“In line with our medium-term debt strategy, the Ministry of Finance adopted many initiatives to develop the debt capital market to increase foreign investors’ participation that would increase the demand, which should lower the cost of borrowing,” Kouchouk said.

The finance ministry’s medium-term debt management strategy centres on reducing debt services, prolonging their maturity, and improving governmental security in markets to expand the base of investors that will in turn provide the required liquidity to support the budget.

According to this strategy, the external debt trajectory will be capped in accordance with the expected cash inflows to the country to a maximum of 37 percent of GDP, which will be put on a downturn path per year.

It also targets decreasing external debt to GDP ratio to below 30 percent over the medium term.

The total external debt that Egypt needs to repay in 2022 — including medium- and long-term debt — is $17.9 billion, $11.9 billion of which will be repaid in the first half of the year, according to the Central Bank of Egypt (CBE).

The CBE’s data also showed that Egypt’s external debt size is in the safe zone — at 34.2 percent of the country’s GDP by the end of June.

Additionally, Nevine Mansour, the adviser to the vice minister of finance , noted that over three years, the team of the Ministry of Finance was in continuous communication with the JP Morgan team to update and align them about all data and information related to the government debt market.

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