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Wednesday, 26 June 2019

Egypt hopes to reach a non-loan program agreement with IMF before October

Egypt is in talks with the IMF for a non-loan program and hopes to reach an agreement by October, Finance Minister Mohamed Maait told Bloomberg TV yesterday (watch, runtime: 4:59). “We started discussing with the IMF, first of all, what are the options Egypt is eligible to and after that we set up a framework for the elements and components of the program and presented it to the IMF and we are in a dialogue about that,” Maait said.

The duration of the program has yet to be determined, but will likely be around two years. Structural reforms will remain Egypt’s top priority for the program moving forward, Maait said, but developing human capital is also an important element for the country.

There still isn’t word about when the IMF will disburse the sixth and final tranche of the USD 12 bn facility: Egypt reached a staff-level agreement with the fund back in May to release the USD 2 bn installment, but as of right now we don’t know when the executive board will sign off on the payment and allow Egypt to exit the program. Egypt is not currently on the published agenda for the IMF’s board.

New eurobond issuances will depend on overall conditions: Maait confirmed that the government is planning to sell between USD 4-7 bn of eurobonds in the coming fiscal year, but cautioned that the ultimate size of the program will depend on “many factors.” Maait didn’t get into the expected maturities of the new issuances, but his ministry has been working to right-size the tenors in its portfolio of debt.

Foreign holdings of Egyptian debt have been on the rise, currently standing at USD 18.7 bn, compared to USD 12.3 bn in January. “It is a significant increase in the last six months. We love to see interest rates declining and to be honest we are seeing that and we are going to use all possible instruments in our hands to see the cost of borrowing declining,” Maait said. CBE board member Fakhry El Fekky told us last week that foreign holdings had risen to USD 17.6 bn by the end of May.

What about FDI? “We have faced challenges but now I am sure after we have done all our homework and got all those problems solved and sorted out, I am expecting that FDI will increase,” Maait said.

Background: Egypt began prioritizing long-term debt and diversifying its sources of funding as part of its new strategy to reduce its debt-to-GDP ratio to 80% by 2022. The government is keen to lower its reliance on short-term debt in FY2019-2020.

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