Beltone, expects that Egypt to continue the current trend depending on the external debt market to benefit from restoring investor’s confidence, according to a research note released by the firm.
The note indicates that despite the current improvement in economic indicators, local currency deposits for new T-bills only cover 35% of the budget deficit in June 2017, supporting Beltone view of the continued accumulation of external debt.
Earlier, Moody’s has placed Egypt among seven emerging markets exposed to rising debt risk and tightening global financial conditions—Lebanon, Egypt, Pakistan, Bahrain, Mongolia, Sri Lanka, and Jordan.
Moody’s based their view according to the relatively short-term debt increases and Egypt’s weak ability to manage debt costs.
Moreover, Standard & Poor’s, in its recent review of Egypt’s credit rating, also cited the risk of a three-year debt decline and high debt costs. S&P’s report said that the Egyptian government has sought to diversify debt sources by raising long-term debt levels to deal with this type of risk; however, this could expose the government to foreign exchange risks.
The finance minister had earlier announced plans to rely on bonds at five to seven years as a way to move to long-term borrowing rather than short-term domestic debt, confirming Beltone’s vision.
Beltone forecasted that the government plans to issue international bonds worth $7bn in fiscal year 2017/2018, of which $4bn was already covered in February and €2bn in April.
The research note concludes that there is a limited risk in the short term as the economic indicators show a special improvement in the foreign sector during the current period.
This can be seen with the growth of exports, foreign direct investment, and tourism, in addition to reducing the burden on the domestic gas import bill.
Furthermore, it should be noted that S&P maintained its stable outlook because it balanced the decline in the current account deficit, falling inflation levels, and strong growth prospects against the risk of continued high budget deficits and rising short-term government debt at high-interest rates.
