** #3 Egypt considers issuing EGP-denominated bonds on int’l market: The Madbouly government is considering an EGP-denominated bond issuance on the international market to encourage overseas inflows and curb the cost of borrowing, four unnamed sources told Bloomberg. “While investors would purchase the bonds in USD, the principal and interest would be payable in EGP, which means the buyer bears the risk of any fluctuation in the exchange rate,” they noted. While the sources did not delve into the mechanisms of the offering, they noted that the transactions would be cleared through Belgium-based settlement company Euroclear instead of local banks. These plans comes as the Finance Ministry is looking to diversity its funding with an eye to capping borrowing over the next four years at USD 20 bn. These include issuing eurobonds in USD, RMB, and JPY in 1Q2019.

Is the government expecting the EGP to fall in the coming period? Passing the FX risks to investors could indicate that the government is some pressure on the EGP. There’s a growing consensus among sell-side research analysts that the CBE is subtly defending the EGP, which has fallen substantially less against the USD this year than has an MSCI basket of emerging markets currencies. Capital Economics has said it expects the EGP could lose up to 10% of its value against the USD by 2020. The government line has always been that Egypt’s fundamentals have shielded the EGP from the EM selloff.