“The Ministry of Finance succeeded in returning strongly to the international bond market, with the largest offering, despite the exceptional circumstances that the world and financial markets are witnessing recently due to the repercussions of the spread of the new Corona virus (COFED-19).” Thus, the official media celebrated in Egypt for several days, By selling international bonds worth five billion dollars.
According to the government and the media close to it, the Ministry of Finance has succeeded in implementing the largest international issuance of international bonds carried out by the Arab Republic of Egypt, with a value of $ 5 billion in three classes (4, 12 and 30 years), with export values of $ 1.25 billion and $ 1.7 billion , And $ 2 billion, respectively, at very good rates of return in light of the recent volatility in global financial markets and the high degree of risk and uncertainty from investors.
The government cited what it says that the offering has witnessed, since its inception, a strong and continuous increase of purchase requests by foreign investors from all regions and countries, where the size of the subscription requests by foreign investors reached more than $ 9 billion after only 2.5 hours after the start of subscription and announcing the offering from Cairo, then reached more than $ 22 billion in the final stages of the offering and before the closure.
But the picture is not rosy to everyone in Egypt, as many economists and opposition parties see that what happened is only a continuation of the borrowing policy pursued by the Egyptian regime since the military coup in the summer of 2013, which caused the Egyptian public external debt to rise to 112 billion dollars at the end of December 2019, according to World Bank data.
Those who reject the borrowing policy see that the main problem is that most of the loan money is not directed to productive projects that generate profits for the state treasury and benefit the people, but rather it is directed to paying the installments and benefits of previous debts from which the people did not see any interest, in addition to that the interest value is very high In these bonds, which creates additional burdens on the state.
The Egyptian external debt has evolved in recent years. In 2016, Egypt's external debt jumped significantly to register about $ 55.8 billion, and in 2017 it reached $ 82.8 billion, and by the end of 2018 it amounted to $ 96.57 billion, while at the end of 2019 it had reached $ 112.67 billion .
Debt service acquires the majority of the state's public revenues, so the preliminary statement numbers for the 2020-2021 budget show that total public revenue is about 1.28 trillion pounds, while public debt installments, as the statement anticipated, are at 555 billion pounds, and public debt benefits 566 billion pounds, meaning that debt service The year represents 1.12 trillion pounds, which is 87% of the total public revenue.
New loans
and what worries opponents that the sale of international bonds came a few days after the Egyptian government announced that the International Monetary Fund agreed to grant Egypt an emergency loan of $ 2.77 billion in emergency aid to help the country deal with the impact of the Corona epidemic.
Egypt is also seeking additional loans from international institutions, including more than 9 billion dollars.
According to "Bloomberg" news agency, according to an Egyptian official, who asked not to be named, Egypt aims to obtain more than 5 billion additional from the International Monetary Fund, in addition to 4 billion dollars from other international institutions.
According to the same official, Egypt aims to have a total of 8.5 billion dollars obtained from the fund in the face of the effects of the Corona virus.
Egypt's economy is under pressure from the emerging epidemic of Corona virus, which has stopped the tourism sector, which is a major source of revenue in hard currency.
Egypt lost about 8.5 billion dollars in foreign exchange reserves available with the Central Bank in two months, reaching 37.037 billion dollars at the end of last April, down from 45.5 billion dollars at the end of last February.
The government has taken steps to contain the outbreak, including a night curfew and the closure of cafes and mosques, but has refrained from imposing full public isolation measures as it seeks to keep the economy open.
A great achievement,
despite all the criticism, the Egyptian government insists that it has achieved a great achievement by returning to the international bond market, and Finance Minister Mohamed Ma’at believes that this achievement reflects the growing and strong investor and international financial market confidence in the ability, capabilities and performance of the Egyptian economy, due to the improvement of all economic and financial indicators for Egypt.
In statements to local newspapers, the minister added that the return to international markets enabled the Egyptian economy to withstand and deal with external shocks.
He stressed that the large and increasing demand for Egyptian international bonds, which reached before the end of the offering to about $ 22 billion, represents a coverage rate exceeding 4 times the value of the offering, which amounted to about $ 5 billion, which is a large coverage rate and exceeds the coverage rates witnessed by the international issues of many countries Emerging during the past months, which also reflects the confidence of the international community in the efforts and results of the economic and financial reform program implemented by the Egyptian government and fully supported by the political leadership.
In turn, Ahmed Kjok, Deputy Minister of Finance for Financial Policies, stressed that this issuance will contribute to providing additional sources of financing for the budget during the coming period, in addition to extending the life of the Egyptian bond portfolio and the average age of the Egyptian debt, all of which will contribute to improving indebtedness indicators and debt service.
"The purchase orders came from investors from all geographical regions of the world, including the United States, European countries, Asian countries, countries of the Middle East and Africa, which allowed for a strong and diversified volume of requests, which helped the Ministry of Finance to reduce the interest rate on the bonds offered by about 50 points," he added. Basis compared to the announced opening prices at the start of the offering process.
A major catastrophe
In light of the government’s adherence to the great achievement story, independent and opposition economists insist on describing what happened as the great catastrophe on the Egyptian economy, including economic journalist Mustafa Abdel Salam, who commented on what happened, saying, “We wake up in the morning and we found the government borrowing in one day 6 billion dollars, The Ministry of Finance borrowed $ 4 billion through international bonds that it placed on international lenders on the Irish Stock Exchange, and the central bank borrowed $ 2 billion from international banks for one year to support foreign exchange reserves.
He added in his blog on his official account on Facebook, that two billion dollars of new loans will be directed to pay international debts owed to Egypt during the current month, and the rest will be directed to support the foreigner's reserves at the Central Bank.
He warned that the government plans to borrow $ 6 billion from Gulf countries and China, as a condition for obtaining the first tranche of the IMF loan, stressing that new loans, which will total their value to $ 16 billion, will be added to the $ 21 billion being obtained from the IMF. Other institutions include the World Bank, the African Development Bank, and Arab investment funds.
Activist Adel Fawzi, in turn, asked, "Didn't the time come for the state to think a little about the borrowing policy?" In 2013, the government solved the liquidity crisis with big loans, which doubled the external debt more than once, and now it borrows again and after several years it will borrow again, and every time the bill increases. "
He added in a post on Facebook: When will the government understand that building bridges (bridges) and contracting projects are not sustainable development projects or economic achievements from the foundation, calling on the government to consider establishing a real economy based on production and export, away from imposing fees and levies on the roads and selling energy Citizens by multiplying their cost and borrowing to run "crunches" in construction companies.
Ok, is it not time for the state to think a little? .. You were liquidated by the 2013 liquidity crisis with big loans .. You multiplied the external debt more than once ... ..
Posted by Adel Fawzy on Saturday, May 16, 2020
In turn, the academic, Dr. Nael El-Shafei, said in a post on his Facebook account that Egypt sold bonds in euros worth $ 5 billion, despite the fact that Egypt's credit rating is less than the level of safe investment by four degrees or more, according to Bloomberg Agency.
He warned that the European bonds that are offered on the European stock exchange Euronext - which includes Paris, Brussels, Amsterdam, Oslo, Dublin and Lisbon - are subject to the laws of the country in which the bond offering is located.
He added that in the event that the state is unable to pay the bond coupons, the bond holder will have the right to sue the Egyptian state in a European court, noting that in 2013 Argentina tried to replace the 9% interest rate with a lower interest, then the London and New York courts in 2014 issued two rulings that bankrupted the Argentine government and allowed Reserve any of its property.