Egypt continues to move towards international debt markets and is currently considering offering bonds in Gulf currencies. This comes in light of Egypt’s most prominent challenge, the high cost of financing, after its credit rating was lowered.
Investing in potential financing tools
Egyptian Finance Minister Mohamed Maait said in a statement that Egypt is considering issuing bonds in Gulf currencies during the coming period. However, this requires coordination with advisors and lawyers, as the matter is not easy.
He added that obtaining financing at a reasonable cost is no longer easy. That is due to Egypt’s credit rating and tight monetary policy.
Last month, Fitch Ratings lowered Egypt’s long-term credit rating to B- from B, with a stable outlook. Fitch cited slow progress in reforms and the transition to a more flexible exchange rate system. Moreover, it highlighted the IMF program’s review as another reason. This came in the wake of a similar reduction by Moody’s and S&P International.
Financing pressure
Maait stated that Egypt is working under very intense pressure due to high interest rates. He noted that a year and a half ago today, Egypt was issuing treasury bills with an interest rate of 9 or 10 percent. He added that interest rates for short-term treasury bills are currently at 26 percent.
Last month, the Egyptian government issued Samurai bonds (denominated in yen) in the Japanese market. The bonds amount to $500 million for a period of 5 years and an annual return rate of 1.5 percent. In October, it issued Panda bonds in the Chinese market in yuan, worth $500 million, with a return rate of 3.5 percent annually for 3 years.
In this regard, Maait stated that the cost of borrowing from Asian markets amounted to about 3.5 percent. That is compared to a higher cost for Eurobonds or other international markets.
Negotiations with the IMF
The delay in conducting the International Monetary Fund’s (IMF) review of Egypt’s economic reform program is among the reasons that contributed to the high cost of financing for Egypt. In March and September 2023, the country was supposed to receive two tranches of the fund’s loan amounting to $3 billion. That is after receiving the first installment following the conclusion the agreement on the program in 2022. However, that did not happen. Today, there are confirmations that the program will soon be launched with an increase in its value to $5 billion.
Maait confirmend that Egypt’s negotiations with the IMF are going well and confronting inflation is a priority. He stated that Egypt is discussing increasing the value of financing. Moreover, the international community sees that Egypt bears burdens for which it is not responsible, foremost of which is the Gaza war and its impact on Egypt’s economy. Thus, he assured that financial institutions understand Egypt’s economic situation.
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