Egypt Has Crisis Experience to Handle a Fed Taper, Minister Says
Egypt Has Crisis Experience to Handle a Fed Taper, Minister Says
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Egypt’s finance minister voiced confidence in his country’s ability to cope should the U.S. Federal Reserve start tapering its pandemic stimulus, a risk because that may undercut the North African nation’s appeal among investors.
“We are closely monitoring” how the Fed’s decision could affect the cost of borrowing, Mohamed Maait said in an interview with Bloomberg TV. “We are taking into consideration our experience with such a situation,” he said, recalling the more than $20 billion that left the country over the past three years as a result of volatility in emerging markets and the impact of the Covid-19 pandemic.
“We have to be ready, always,” Maait said.
Egypt’s authorities have plenty of recent experience in crisis management, after a crippling dollar shortage prompted a currency devaluation and sweeping reforms in 2016 that were backed by a $12 billion International Monetary Fund program. That was followed by another loan to help cope with the pandemic.
Debt Burden
IMF backing helped draw in investors enamored with a real interest rate that’s one of the highest among more than 50 major economies tracked by Bloomberg. They subsequently pumped billions of dollars into the local debt market.
But that kind of appeal has come at a price.
S&P Global Ratings warned in a recent report that Egypt’s reliance on borrowing has left it with a crippling debt-service burden that’s one of the heaviest among all sovereigns. It said authorities need to get more funding from equity sources if the country is to weather a potential increase in global interest rates.
Maait downplayed those concerns. “We are containing debt-to-GDP ratio in the corona time,” he said.
Debt servicing accounted for 36% of budget spending as of June, down from 40% a year earlier, and the government aims to cut it to 32% by end of June 2022, Maait said. It’s also working to improve the investment environment and wants to see foreign-direct investment inflows into projects that “can be part of our economic growth,” helping create jobs and boost exports, he said.
The minister outlined some other key goals:
- Egypt aims to have its local debt settled by Belgium-based Euroclear Bank SA in the first quarter of next year, instead of the November date targeted earlier. Some technical issues are still being discussed.
- Egypt also hopes to “soon” get its notes included in JPMorgan Chase & Co.’s Government Bond Index for emerging markets-- which attracts investments from passive funds that track the gauge.
International Markets
Maait said the nation could issue dollar or euro-denominated bonds, and maybe sell more green bonds, before the fiscal year ends next June. Last year it tapped international markets for $3.8 billion in dollar-denominated bonds and sold $750 million in the region’s first sovereign green bonds.
Egypt also hopes to issue its first sovereign sukuk bond in the first half of 2022, he said. “We haven’t decided the size yet, but it may range between $500 million and $700 million.”
IMF Again?
Asked if Egypt was planning to approach the IMF for an agreement that doesn’t involve borrowing to help cement investor confidence, Maait said the engagement with the fund “will continue, whatever the form.”
Maait also said:
- Egypt is targeting 5.5% economic growth in the current fiscal year and 6% in the next year.
- Focus on mega-projects is the main driver of economic growth
- Inflation in Egypt is “transitory.” Once the current spike in global prices eases, “I’m expecting inflation to start coming down and things will move to normal.”
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