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Monday, 10 September 2018

Managing our foreign debt is now a top priority for the Madbouly cabinet

**#7 Egypt’s foreign debt grew to USD 92.64 bn at the end of FY2017-18, up from USD 88.2 bn at the end of government’s third quarter in March and USD 79.2 bn at the end of June 2017, Prime Minister Mostafa Madbouly tells Al Watan in an interview. Foreign debt levels for the fiscal year that ended in June were at 37.2% of GDP, up from 36.8% in March. Madbouly attributed the increase to a rise in borrowing to plug the financing gap, particularly in light of foreign currency shortages after the EGP float in November 2016.

The latest figures should add impetus to the Madbouly Cabinet’s adoption of a debt control strategycurrently being developed by the Finance Ministry and which is set to be the cornerstone of the government’s fiscal policy agenda. The plan would set limits on both internal and external borrowing in a bid to bring down overall public debt levels to 91% of GDP from a current 98% of GDP. Ministry sources had told us to expect the rollout of a new comprehensive debt control strategy in October.

So why is Nasr meeting with a World Bank delegation to discuss USD 1 bn loan for Sinai development? Investment and International Cooperation Minister Sahar Nasr met yesterday with a delegation from the World Bank to discuss a USD 1 bn loan the bank is expected to extend to Egypt to help finance the development of the Sinai Peninsula, according to a ministry statement (pdf). The two sides looked into finalizing the agreement as soon as possible, the statement said, without providing further details. Talks on the package began back in April, after developing the peninsula became a top priority for the government when then-Prime Minister Sherif Ismail pledged EGP 275 bn. Backlog debt talks include a USD 1.2 bn loan agreement the Transport Ministry expects to sign this month with the Export-Import Bank of China to finance the development of the 10 Ramadan-new capital electric high-speed rail, government sources tell Al Shorouk. Keep in mind as the debt control plan unfolds that this isn’t about “no new debt,” but about “no new debt that will contribute to a debt crunch” if (a) hot money flees or (b) we get strangled with badly-timed repayment requirements, among other issues.

…Speaking of World Bank funding, Egypt is expected to receive the first tranche of its USD 500 mn loan to support the state’s K-12 educational reform strategy within the next three months, Education Minister Tarek Shawki said, according to Al Mal.

Rising yields continues to add urgency to the plan. Sunday’s three-month bond auction saw average yields rise to 19.31% from 19.18%, while yields at the nine-month auction rose to 19.64% from 19.55%, according to data from the Finance Ministry. A Finance Ministry source had also told us that the debt control strategy could see the tenor of government bond issuances limited to medium-to-long term issuances and that there was talk of cancelling foreign currency-denominated bond issuances this year. The ministry had cancelled a sale of EGP 3.5 bn worth of three- and seven-year T-bills last week, saying that the yields requested were too high.

CBE says banks need FinMin permission for fresh lending to state companies: The central bank has issued a directive to all Egyptian banks telling them to seek Finance Ministry sign off before approving neew loans to state companies. We’re seeing this as a move by the Finance Ministry to keep a closer eye on the finances of state owned companies in the era of debt control and ahead of the launch of the state privatization program. The government is also looking to push state firms to pay overdue gas and electricity bills as well as handle their mounting debts.

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