A sign outside the headquarters of JP Morgan Chase & Co in New York, September 19, 2013. REUTERS/Mike Segar
CAIRO – 1 October 2018: Egypt plans to contact JPMorgan Chase & Co. for inclusion in its emerging-market bond indices to boost inflows from overseas institutional investors into its domestic debt market, three people familiar with the matter told Bloomberg.
In preparation for this step, the government is taking measures to guarantee that Egypt’s debt is suitable for inclusion over the next year.
Egypt’s steps to make its debts eligible include talks with Belgium-based Euroclear to settle its domestic debt transactions. Investors currently have to go through local banks to clear transactions in treasury bills and bonds.
“Ensuring cross-border domestic debt purchases that can be cleared efficiently will also help facilitate Egypt’s inclusion in the index,” sources noted.
According to Bloomberg, JPM declined to comment and officials at Egypt’s Ministry of Finance did not immediately respond to requests for comment.
“The plan comes after foreign demand for Egyptian pound-denominated debt waned amid a sell-off in risky assets. More than $6 billion flowed out of local treasury bonds and bills in the three months from the end of April as volatility swept across emerging markets,” Bloomberg stated.
In the time Egypt is going forward to decline its budget deficit, the decrease on demand for its domestic bonds was reflected on the increase on yields, in addition to debt servicing costs.
Egypt canceled bids for treasury bills four times this year, each worth LE 3.5 billion, amid calls to raise its interest rates.
The Central Bank of Egypt’s Monetary Policy Committee kept interest rates unchanged for the fourth time this year during September meeting, setting the overnight deposit rate and the overnight lending rate at 16.75 percent and 17.75 percent, respectively.
For the current fiscal year, the budget deficit is estimated to record LE 438.59 billion, or 8.4 percent, planned by the ministry to be financed through treasury bills and bonds and through international and Arab loans.
The sources said that the Egyptian government is hoping that inclusion in the JP Morgan index will encourage passive inflows and help ease the debt servicing burden.
By the end of January, Saudi Arabia and four other Gulf countries will become eligible for inclusion in JPMorgan’s emerging-market bonds indices, attracting billions of dollars in passive inflows.