Egypt Daily News- The Egyptian Ministry of Finance is looking to extend the deadline for repaying its local debt in an effort to reduce the burdens on the state’s general budget after interest rates increased and reached record levels.
Finance Minister Mohamed Maait said in an interview with Bloomberg yesterday that talks are ongoing with public entities such as the Central Bank, pension funds, and government health insurance, focus on extending the maturity dates for local obligations owed to those institutions, with the aim of reducing Egypt’s total financing requirements in the coming years.
The Ministry of Finance has issued around $100 billion in local currency bonds and bills due as of January 31, according to Bloomberg.
Mustafa Badra, an economic expert, said that extending the deadline for repaying the debt will focus on the local obligations that the Ministry of Finance periodically offers treasury bills and bonds - and not foreign debts - to reduce the size of the financial burdens, especially with the approaching end of the current fiscal year at the end of June 2024.
He added that extending the domestic debt repayment deadline will help the Ministry of Finance manage debt service - interest payment - more easily after successive jumps in interest rates over the last two years.
The Ministry of Finance resorts on a weekly basis to selling treasury bills and bonds, which is one of the financial instruments, with the aim of attracting liquidity from investors to cover its expenses due to the budget deficit, that is, the gap between revenues and expenses.
Interest rates on treasury bills more than doubled during the last two years due to an increase in inflation rates, reaching about 32%, before they recently fell to about 26% in the last tender after the Egyptian economy began to recover, foreign exchange flows amounted to about $50 billion, and the exchange market was regulated.
Increase in foreign exchange resources
Mustafa Badra continued that the abundance of foreign exchange resources does not mean that there is no need to re-extend the term of the local debt, but rather it will help to create the investment climate and reduce the risks of increasing the interest cost during the coming period.
The Finance Minister said, in an interview with CNBC Arabia, that 50% of the proceeds from the offerings, especially Ras El Hekma, will be used to reduce debt, expecting the debt ratio to reach 88% by the end of the current fiscal year on June 30, 2024.
Egypt signed the largest investment deal with the UAE during the second half of last February, worth about $35 billion, to obtain the right to develop the city of Ras El Hekma, and a week after the signing, it received $15 billion, the first installment of the deal.
Egypt is expected to receive the second installment of the Ras El-Hikma deal, worth 20 billion, starting next May, according to what the Minister of Finance said to CNBC Arabia yesterday.
Badra also added that Egypt's obtaining financing from international financial institutions - at a concessional interest rate - enhances increased confidence in the Egyptian economy and creates an investment climate, as well as an indication of the imminent reduction of interest rates.
The Finance Minister added during his interview with Bloomberg that until the end of April, in addition to May and June, that Egypt will receive a total payment between 25 and 30 billion dollars from international financial institutions in addition to Ras El-Hekma investments.
Egypt's credit rating improving
Mahmoud Najla, Executive Director of Money Markets and Fixed Income at Al Ahly Financial Investments, believes that extending the debt term from short to medium and long-term will be a positive indicator for international credit rating companies when assessing debt risks in the local currency, which is a basic pillar in determining the country’s rating.
He explained that reducing short-term debt from the total public debt will reduce the pressure on the Ministry of Finance, and the absence of pressure on the government to sell treasury bills and bonds at high interest rates, due to its urgent need to collect quick liquidity to pay part of the debt owed in the local currency, and it is time to pay it.
The Minister of Finance had said with CNBC Arabia that restructuring obligations would help the Ministry of Finance reach the goal of raising the average maturity of total debt to between 4.5 and 5 years by June 2028, compared to 3.3 years at the end of the current fiscal year.
Recent economic reforms, including liberalizing the exchange rate and increasing foreign exchange inflows, have helped improve Egypt's credit rating. Moody's, the credit rating agency, announced last March that it had revised its future outlook for Egypt's rating to "positive" and maintained Egypt's credit rating at (Caa1).
In a similar move, Standard & Poor's International Credit Rating Agency announced that it modified its future outlook for Egypt to positive from stable.
Support foreign exchange reserves
According to Mahmoud Nagla, restructuring the internal debt also represents an important and necessary step at the present time to focus more quickly on building a strong foreign exchange reserve, which is a basic goal.
Egypt's foreign exchange reserves jumped by more than $5 billion during last March compared to the previous February for the first time in two years, recording about $40.36 billion, according to Central Bank data.
This came after foreign exchange reserves lost about $7.8 billion from March to August 2022 due to the exit of indirect foreign investments worth about $22 billion before compensating part of their losses.
The European Union announced the urgent provision of financial aid to Egypt worth one billion dollars out of a total financing package worth 8 billion dollars over the next 3 years to support the Egyptian economy after it was damaged by the events of the Israeli war in Gaza.
The International Monetary Fund disbursed $820 million to Egypt, the value of the first and second reviews of the economic reform program, which it supports with a loan worth $8 billion.
The World Bank Group also announced the allocation of $6 billion to Egypt over the next 3 years to support economic reform and private sector growth in Egypt.
