Egypt raises $4bn from bond issue

25 Jan 17

Egypt has raised $4bn from its first public bond issuance since securing $12bn in aid from the International Monetary Fund, it was announced yesterday.

 

The sale was reportedly oversubscribed despite the fact that ratings agencies had given the bonds lower grades due to the country’s high fiscal deficit, public debt and security problems.

The funds will plug Egypt’s remaining budget deficit, which was 5.1% of GDP for the first half the 2016/17 fiscal year – down from 6.2% in the same period last year.

The government is targeting a deficit of 10.1% by the end of financial year, which would be a reduction of 2 percentage points compared with last year (12.2%).   

A few days before the bond issue, the IMF published and discussed the details of its programme for Egypt. The fund has received criticism for a substantial delay in unveiling this information on grounds that it may have breached its own transparency rules.  

In order to secure the deal, Egypt was required to depeg its currency – floating the Egyptian pound for the first time in decades – and cut subsidies on household electricity and sugar.

The measures saw the pound depreciate by almost 50% and pushed prices for electricity and sugar up by 40%.

Speaking earlier this week, Chris Jarvis, the IMF’s mission chief for Egypt, said the currency depreciated “quite a bit, more than we expected”.

“That may not last for much longer or it may continue for a while,” he added.

So far, he said the country’s government has adhered to its commitments under the programme, which also include establishing a VAT system and increasing spending.

The plan, which Jarvis described as “home grown”, is intended to fix a host of economic issues. These include Egypt’s “precariously low” foreign reserves, a deficit worth 12% of GDP, public debt worth 95% in 2016 – on top of stubbornly low growth averaging 2.5% over the past five years. Unemployment is also particularly high, at 12.7%, a figure that has risen among the youth population.

Jarvis said the results were satisfactory so far, with some elements being better than expected and others being worse.

Egypt has already received the first instalment of its loan, and the next tranche is due in the spring, Jarvis noted.

The loan as a whole was approved on November 11, after which the IMF had 14-28 days to publish certain key documents, under its own transparency rules. These include a staff report into Egypt, the country’s letter of intent and its memorandum of economic and financial policies.

Publication, however, does require consent from the member country. The delay fuelled speculation that Egypt did not want the staff report published or was attempting to change aspects of the document.

As well as breaching the fund’s transparency rules, the delay violated the Egyptian constitution which requires all international agreements be presented before parliament.

The reports were eventually published last week. The government is now reportedly presenting the deal to parliament, which will have the option of rejecting or accepting the loan.

Commenting on the criticisms, Jarvis, referring to a metaphor used earlier to describe the policy “recipe” for Egypt, said: “Sometimes during the cooking process, you maybe don’t want everybody looking into the kitchen. And you don’t want to have too many cooks in, but we actually tried to bring in many ministers.”

He added that the delay had been down to ensuring that the fund and government “had everything right” in the document and because the fund was waiting to harmonise publication with the Egyptian government’s presentation to parliament. 

  • Emma Rumney

    Emma is a reporter at Cooking Recipes International. She also writes for in the UK.

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