A Reuters report said that high interest rates, a weak currency and the warning of broader investors from emerging markets indicate that Egypt may pay exorbitant sums to finance an expected deficit of $ 30 billion in the budget for the fiscal year that begins next July.

Analysts say that Egypt was struggling to maintain continued domestic and foreign borrowing to plug the current account and budget deficits and avoid pressures that weaken its currency, even before the Federal Reserve (the US central bank) raised interest rates that began last March and the start of Russia's war on Ukraine.

In addition to these two matters, which led to the exit of investments from Egypt amounting to 20 billion dollars, according to its Prime Minister, the Ukraine war has caused a new shock to the tourism sector in Egypt, which is an important source of foreign currency, in addition to the high prices of wheat and other basic commodities required for the government program Huge nutrient support.

Currently, the price of "Eurobond" bonds denominated in dollars, due in 2032, is about 75 cents per dollar, meaning that it has witnessed a decline with the increasing concern of investors who were attracted by reforms carried out in 2016 under the supervision of the International Monetary Fund about the government's financial affairs.

This suggests that Egypt will have to pay higher interest if it seeks to issue more bonds, even as it tries to diversify its debt with green bonds, Sharia-compliant bonds and yen-denominated samurai bonds.


Significant increase in the percentage of Egyptian debt in foreign currency

James Swanston, an economist for the Middle East and North Africa at Capital Economics, pointed to the "very large" increase in the Egyptian foreign currency debt ratio in the past years.

Medium and long-term foreign debt more than tripled to $121.5 billion over 7 years until October 1, 2021

,

according to central bank data.

Swanston said, "The danger is that - as we expect - if the (Egyptian) pound weakens, it will raise the debt ratio (to GDP) more, and also that any attempt to reissue debt or issue new debt will be of much higher interest given the difficult situation. global cash.

The government - which is currently seeking again to obtain aid from the International Monetary Fund - presented a draft budget to Parliament last week. It is expected that spending in 2022-2023 will reach 2.07 trillion pounds, and revenues will reach only 1.52 trillion;

This means a deficit of more than 558 billion Egyptian pounds ($30.5 billion).

  (Al Jazeera)

Private Sector Participation

Analysts say the debt-servicing bill leaves little room for spending after government salaries and subsidies are paid.

Domestic and foreign interest payments alone are set to absorb 45.4% of total revenue, higher than the 44.6% expected in the current fiscal year.

Egypt has also been working - as it announces - on a series of giant projects for years, including a new administrative capital that cost $60 billion, a high-speed railway network worth $23 billion, and a nuclear power plant worth $25 billion.

Egyptian Prime Minister Mostafa Madbouly said - in a press conference on Sunday - that such projects are necessary to accommodate one million people who enter the labor market every year.


He added that Egypt plans to raise $10 billion by the end of the year and another $30 billion in the next three years through private sector participation in projects, including offering stakes in government companies in the stock market.

The Egyptian government has been talking about such measures for years, and announced in 2018 that it would offer minority stakes in 23 state-owned companies in a plan to raise up to 80 billion pounds.

But the program has been repeatedly delayed due to weak markets, legal obstacles and the readiness of companies' financial documents, according to government officials.

big pressure

Meanwhile, external debt payments - amounting to about $16 billion in 2022-2023 - include nearly $2 billion owed to the International Monetary Fund, primarily to a $12 billion financial package that Egypt received in 2016.

Even when this debt is on concessional terms, it adds to the balance of payments pressures, said Farouk Soussa, chief economist at Goldman Sachs.


He cited as an example that Egypt must find nearly $6 billion to repay the International Monetary Fund in 2025.

Taking into account the principal installments, the total debt service costs amount to 965.5 billion Egyptian pounds ($53 billion), according to the draft budget.

The central bank in March devalued the pound by 14% to about 18.40 per dollar, making it more expensive to buy foreign currency.

Black market traders bought dollars for 19.40 pounds last week.

However, Egypt may turn to its traditional allies in the Gulf for support.