Egypt Floods Debt Market to Bolster State Coffers Amid Pandemic

CAIRO (Capital Markets in Africa) — Egypt is on a record borrowing spree so far this year as the Arab world’s most populous country builds fiscal room to counter the economic effects of the coronavirus pandemic.

The North African nation sold $31.7 billion of debt through Feb. 17, up 19% compared with the same period last year, according to data compiled by Bloomberg. Local-currency issuance was the highest since at least 2010 when Bloomberg started tracking the data, while foreign bond sales were the most since 2017.

The country is “taking advantage of favorable debt-market conditions to bolster its finances so that it has the firepower to navigate support to the economy as it battles the Covid slowdown,” said Abdul Kadir Hussain, the Dubai-based head of fixed-income asset management at Arqaam Capital. “We expect that as Egypt starts to recover post-Covid, fiscal-support needs will decline.”

The pandemic has cut into Egypt’s main sources of foreign currency, including tourism and Suez Canal receipts. The country raised $3.8 billion this month in its first international bond sale of the year. The issuance included notes with maturities as long as 40 years.

Egypt has embarked on a multi-pronged plan to ease the cost of borrowing by diversifying funding sources and extending maturities through gradual shifts into longer-dated instruments like treasury bonds rather than bills.

“This is good for the stability of the budget because it’s long-term funding, given Egypt previously had high rollover risk in the local debt market,” according to Mohamed Abu Basha, head of macroeconomic research at Cairo-based EFG-Hermes Holding.

The International Monetary Fund expects Egypt’s ratio of debt to gross domestic product to reach 90.6% this year, the highest among Middle Eastern and North African peers. The lender expects that figure to decline through 2025.

“From a long-term perspective, after the Covid crisis is over, the country should work on reducing its debt burden over time,” Arqaam’s Hussain said.

Source: Bloomberg Business News