By Vivian Nereim and Ahmed Feteha
Government has started initial talks with European banks
Officials are seeking overseas financing to plug budget gap
Egypt’s cabinet is expected to approve a plan to sell 1.5 billion in euro-denominated bonds in two to three weeks, the finance minister said, as the government seeks cheaper finance abroad to plug its budget gap.
The Finance Ministry has started initial discussions with some European investment banks, Amr El-Garhy said in an interview in Bahrain late on Saturday. The notes, which will be Egypt’s first in euros, will likely have tenors of five to 10 years, he said. The plan is to sell the bonds before the end of November, El-Garhy told Bloomberg earlier.
There are some “pockets of money” in Europe that are interested in Egyptian assets, El-Garhy said. “We’re taking good advantage of the current market conditions as well as the progress in our current economic reform program.”
With local borrowing costs above 15 percent, Egypt is increasingly looking at international debt markets to capitalize on growing investor confidence after it floated its currency and cut costly energy subsidies. The steps helped seal a three-year $12 billion loan program from the International Monetary Fund in November. Egypt has since raised $7 billion from the sale of international bonds, helping foreign reserves surge to a record of more than $36 billion.
“The focus is to make sure that the level of external debt to gross domestic product is within a manageable level, and within a comfortable level that we believe we can manage in the medium and the long term,” El-Garhy said.
The budget deficit fell to 10.9 percent from 12.5 percent of gross domestic product in the fiscal year ended June 30 on the subsidy cuts and a government tax increase.
Yet Moody’s Investors Service last month stopped short of upgrading Egypt’s junk credit rating — or even improving its outlook from “stable” — citing Egypt’s “very weak government finances” and increased external exposure.
“It was a bit strange to say the least,” El-Garhy said of the decision. “In a year full of economic reform actions and very bold actions on all fronts, you don’t see anything, you don’t see any positive sign” from Moody’s, he said.
Egypt is rated B3 at Moody’s, six steps below investment grade and on par with Lebanon, Argentina, Pakistan and Ghana.
El-Garhy also said:
- IMF’s second program review is expected by the end of October
- Egypt is on course to meet fiscal and monetary targets
- Economic activity is starting to recover: “We’re seeing a pickup in most sectors of the economy”