Towards better-managed foreign debt - Egypt - Al-Ahram Weekly

Al-Ahram Weekly

28-01-2025

The Ministry of Finance is planning the gradual reduction and diversification of Egypt's foreign debt
The overall value of the bonds Egypt plans to issue in the international markets during the coming six months will not exceed $4 billion, Minister of Finance Ahmed Kouchok told reporters on the fringe of the World Economic Forum meeting in the Swiss city of Davos last week.
He noted that plans for international debt offerings are on the right track, stressing that the second half of 2024-25 would see several different offerings and marking Egypt's return to the international debt market. Most of these offerings will be dollar-denominated.
Egypt's last sovereign bond offering was in 2021 when it gathered $6.75 billion through two separate Eurobonds issues. Eurobonds are bonds traded in the international market in any currency.
Kouchock noted that his plans include the possibility of issuing Islamic bonds (sukuk). Egypt's first and only attempt to tap the sukuk market was in 2023 with a $1.5 billion issue.
Unidentified local official sources told the Enterprise online news outlet last week that Egypt plans to issue $1 to $1.5 billion worth of Eurobonds or green bonds in international markets as soon as next month, followed by an issuance of sovereign sukuk bonds.
Kouchok also told Asharq News during the Davos meetings that Egypt is pursuing agreements to swap debts for assets and investments with several investors and international institutions.
He named the Ras Al-Hekma deal, which saw the Abu Dhabi Sovereign Fund ADQ pumping $24 billion in investments to develop the project, together with the UAE transferring $11 billion of its deposits at the Central Bank of Egypt (CBE) to investments in it, as a 'good example of a debt swap deal that is beneficial for both parties and that we hope to repeat.'
The Ras Al-Hekma project is a real-estate development project on Egypt's North Coast.
The receipts of the deal have helped Egypt to increase its foreign-currency reserves and reduce its foreign debt.
These were not the only announcements related to the country's foreign debt made at Davos, as on Saturday a statement by the Finance Ministry denied that Egypt had acquired any new loans and asked the media to exercise due diligence in its reporting.
The statement came on the back of media reports based on a press release issued by Emirates NDB, a UAE-based bank, on Friday stating that Egypt had acquired a $2 billion loan from a select group of Islamic and conventional investors.
Emirates NBD and the Standard Chartered Bank had organised the deal in which Egypt had asked for a $1.5 billion loan. However, the offers had come in at 2.5 times the asked sum, so the Ministry of Finance had decided to raise the value of the loan to $2 billion, according to the press release.
'This is not a new loan,' Sherine Al-Sharkawy, assistant finance minister for economic affairs, told the prime time TV talk show Kelma Akheera on Saturday night. 'It is the loan that parliament approved in December and that the Ministry of Finance announced back then.'
She noted that while the ministry had disclosed the loan in December, the Emirates bank had announced the deal almost a month after its being signed as 'completing the necessary documentation and translation of the deal into Arabic took time.'
The press release noted that this syndicated facility aligns with Egypt's strategy to diversify sources of funding through access to international and regional syndicated loan markets.
The proceeds of the facility, according to the press release, will primarily be utilised to finance the country's budgetary requirements and support it in safeguarding its strong economic path in the prevailing volatile global markets.
It also said that the loan was agreed upon following the settlement of a previous $3 billion syndicated facility in November, which means Egypt is maintaining a decreasing debt trajectory.
Kouchok said he aims to reduce the country's foreign debt by $2 billion annually to ensure borrowing remains below repayments.
Egypt has repaid a total of $38.7 billion of debt dues in 2024, according to Prime Minister Mustafa Madbouli. According to CBE figures, the dues on the debt and its servicing this year come in at $22.4 billion.
However, the minister of finance put the figure for external debt repayments in 2025 at $16 billion. He told Kelma Akheera two weeks ago that 80 per cent of this sum will be covered by local resources while the remaining will be obtained through loans.
The latest available figure for Egypt's foreign debt was $152.9 billion, or 89 per cent of GDP, at the end of June 2024. This is $15 billion less than its level at the end of December 2023.
The government is targeting a public debt-to-GDP ratio of around 85 per cent by the end of the current fiscal year, according to Kouchok.
Kouchok should shortly reveal a comprehensive strategy to manage the public debt. Observers believe that the new strategy will maintain the previous finance minister's plan of increasing the average maturity of foreign debts by rolling over existing short-term debts with longer-term ones.
According to the latest figures from the CBE, the value of the long-term foreign debt decreased to $126.8 billion at the end of June 2024, compared to $138.5 billion in December 2023. Short-term loans also declined from $29.48 billion at the end of 2023 to $26.24 in June 2024.
Egypt is still struggling to increase its foreign-currency resources. In the first quarter of fiscal year 2024-25, a 61 per cent drop in Suez Canal receipts due to disruption in the Red Sea together with an 82 per cent hike in oil and natural gas imports on the back of the slowdown in local production led to a balance of payments deficit of $991.2 million.
This is compared to a surplus of $228.8 million in the corresponding quarter of 2023-24.
The country is about to receive a $1.2 billion tranche from its International Monetary Fund (IMF) loan, the fourth and largest so far.
The EU disbursed €1 billion in loans to Egypt in December following the fulfillment of the policy conditions agreed with the EU under the ongoing Macro-Financial Assistance (MFA) programme.
* A version of this article appears in print in the 30 January, 2025 edition of Al-Ahram Weekly
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