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Thursday, 21 May 2020

With fresh IMF funding in place and more to come, FinMin could cut back on local borrowing to curb the cost of servicing its debt

With fresh IMF funding in place and more to come, FinMin could cut back on local borrowing to curb the cost of servicing its debt: The Finance Ministry could cut down on the number of bids it accepts in EGP-denominated bond sales until the end of FY2019-2020, which wraps on 30 June, according to a statement. The move comes as the ministry looks for ways of reducing the cost of borrowing while continuing to diversify or optimize its sources of funding.

IMF funding is a less expensive way to plug financing gap: The decision comes after Egypt received the USD 2.77 bn rapid financing instrument from the IMF to help support its balance of payments as it grapples with the economic fallout from covid-19, the ministry says. “It makes sense to make use of cheaper financing from the IMF to [make available] resources to counterbalance the negative impact of the covid-19 shock,” EFG Hermes’ head of macroeconomic research Mohamed Abu Basha tells Bloomberg.

The news comes as the Madbouly government is reportedly looking to line up an additional USD 9 bn from international lenders, Bloomberg reported earlier this week, citing an unnamed official. The figure does not include the USD 2.77 bn rapid financing instrument, but could include a c. USD 5 bn stand-by arrangement (SBA) from the IMF, for which talks are already underway, and a further USD 4 bn from other international lenders.

Background: The Madbouly government is looking for ways of plugging the state’s budget deficit, which Finance Minister Mohamed Maait said earlier this month is expected to widen to 7.8-7.9% this fiscal year, from the 7.2% targeted prior to the crisis. The deficit could also widen again to 7.8% in FY2020-2021 (from a current projection of 6.3%) if the pandemic persists until the end of the year, Maait said.

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