EXCLUSIVE- FinMin’s debt control strategy looks to reduce public debt to 72-75% of GDP by 2021-22: The Finance Ministry’s comprehensive debt control strategy, which has been in the works since August, will aim to reduce Egypt’s public debt to 72-75% of GDP by 2021-22 from 98% today, a senior government official told Enterprise. State budget guidelines for FY2019-20 released last month had set a public debt target of 79.3% of GDP by that time. The rollout of the strategy comes as government has reportedly set a foreign borrowing cap of USD 16.733 bn for FY2018-19, Reuters had reported in October, and is aiming for a limit of USD 14.3 bn in the next fiscal year. The ministry is expected to officially unveil the strategy by the end of the month. Diversification is the name of the game.

Diversification through new instruments: The diversification will see the government look at issuing green bonds and sovereign sukuk (a form of Islamic bonds) as two new-to-Egypt debt instruments. The government is also studying returning to issuing zero-coupon bonds with a tenor of 1.5 years, the official tells us. Finance Minister Mohamed Maait had previously said he expects Egypt’s maiden green bond issuance to take place before the end of the current fiscal year, and sukuk in the fiscal year thereafter.

Diversification of currencies in which we borrow: Egypt is preparing to issue USD 4-7 bn worth of yen-, yuan-, USD-, and EUR-denominated bonds in 1Q2019, and is currently waiting on global markets to stabilize before moving ahead with the issuances, our source says. Maait had said Egypt will next tap the bond market in February or April. The ministry sees Egypt issuing a total of USD 20 bn worth of bonds until 2022, according to our source.

Diversification in sources of funding: Under the strategy, Egypt will look to secure loans from a variety of international institutions to reduce its reliance on treasury issuances. Yields on Egyptian debt soared to an average of 19% this fiscal year, according to the Finance Ministry.

EGP-denominated int’l bonds aren’t happening — at least not right now. The Finance Ministry is not planning to issue EGP-denominated international bonds for the time being, but could do so when and if the time is right, our source said. (Separately, Egypt is close to signing an agreement with Belgium-based clearing house Euroclear to allow foreign investors to trade Egyptian bonds directly instead of through local banks.)

The strategy will see Egypt relying as much as possible on long-term financing to alleviate the burden of repayment. To that end, the Finance Ministry is currently working with the central bank to extend the tenors of its debt to an average of 2.2 years, rather than relying on instruments with three- and nine-month tenors. The ministry is also looking to bring debt service levels down to 20% of GDP from a current 40%.