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Thursday, 29 November 2018

Egypt will not ask the IMF for further funding

Egypt will not ask the IMF for further funding after its USD 12 bn, IMF-backed reform program ends next year, but will continue cooperating with the lender to maintain investor confidence, Finance Minister Mohamed Maait told Bloomberg in an interview. Asked if Egypt is optimistic about economic growth in light of the global slowdown, Maait said, “Until now we believe that we are on track, we did not downgrade any of our projections, we are waiting for the end of the first half of our financial year to see whether our projections would be as we planned or we have to come out and say we have to change our projections and downgrade them.”

Maait’s global economic worries, in order of impact: For Egypt, an increase in oil prices poses the biggest threat, followed the prospect of further interest rate hikes in the United States and trade wars, including the marquee dust-up between the US and China, Maait said. “Eventually whatever the decision, you have to take into account the global economy and what’s going to happen and I believe that the US will take this into consideration very seriously,” Maait said.

Bank treasury tax law: Commenting on government-proposed amendments to the tax code that would require banks to separately account for their earnings from investments in treasuries, Maait sees a short- term impact on demand for state-issued debt, but thinks the market will adjust. “I have to be very clear about that, I did not change the tax rate on treasury bills and bonds, it’s still 20%. I did not change the tax rate on corporate companies, it’s still 22.5% … the only changes is to separate the tax treatment … and I do that similar to what has been done everywhere … it’s in consistency with the international accounting standards, so it’s not an additional tax burden on financial institutions as it was presented to the media,” Maait said, expecting it to raise an additional EGP 6-8 bn for the state’s coffers. He insisted that it would not apply retroactively.

Bond issuance plans: Egypt will continue tapping the international market and might issue yen and yuan-denominated treasury bonds in early 2019, as we have previously reported. Maait expects green bonds to be issued before the end of the current fiscal year and sukuk in the fiscal year thereafter. “We will diversify countries, we will diversify currencies and we will diversify products,” Maait said.

Egypt will next tap the bond market in February or April of next year and will borrow next year about as much or a less than it did in 2018, Maait said.

Making it easier for foreign investors to get into Egyptian debt: Egypt is, as we’d previously noted, close to signing an agreement with Euroclear which would enable foreign investors to buy EGP-denominated bonds directly instead of through local banks. “We are taking steps. We hope that by April we’ll be ready and in the new financial year all our local and domestic debt issuances will be Euroclearable,” Maait said.

JP Morgan bond index: The government is also hoping to follow in the footsteps of Saudi and other GCC states in joining JPMorgan’s Emerging Market Bond Index (EMBI) by the end of FY 2019. “To be included in the JPMorgan index might take longer, but if we can also finish it by 30 June 2019 it would be a fantastic news for us because we think these tools will help us to reduce the cost of borrowing,” Maait said.

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