CAIRO – 20 February 2019: Egypt aims to raise the share of longer-dated debt to about 70 percent of annual domestic issuance by 2022, compared to 5 percent in the last fiscal year, Deputy Minister of Finance for Financial Policies Ahmed Kojak told Bloomberg.
“We used to borrow to repay both maturing debt and to finance new debt,” Kojak said. “That exerted additional pressure on the market and pushed yields upward.”
According to Bloomberg, the goal of making a gradual shift away from short-term treasury bills and towards instruments as treasury bonds is to push the average maturity to around five years by 2022, almost double the level in the fiscal year that ended in June.
It referred to Egypt’s economic reform program which started in 2016 to secure a $12 billion loan from the International Monetary Fund (IMF). In November 2016, the Executive Board of the IMF approved a $12 billion loan as a financial assistance for Egypt to support the Egyptian economic reform program.
Upon the board's approval in November, Egypt floated its currency, losing around 50 percent of its value as part of the economic reform program which imposed taxes, including the value-added tax (VAT), and cut energy subsidies, all with the aim of trimming the budget deficit.
“As foreign inflows into Egypt’s government securities ended months of declines in January, the government returned to the dollar debt market this week by selling $4 billion in three tranches,” it noted.
Ministry of Finance announced earlier today that Egypt issued international bonds worth $4 billion in three categories that was five times oversubscribed.
CAIRO - 20 February 2019: Egypt issued international bonds worth $4 billion in three categories that was five times oversubscribed, the Ministry of Finance announced. The dollar-denominated bonds come with maturities of five, 10 and 30 years in a sale and will be offered at high revenues, as the subscriptions exceeded $21.5 billion.
Previously in February, Finance Minister Mohamed Ma’it announced that his ministry, in partnership with all members of the Economic Group and the Central Bank, prepared an integrated strategy to reduce and manage the government debt in the medium term.
Kojak commented then that the public debt reduction strategy includes a forward-looking approach aiming to achieve a growth rate of more than 6 percent over the next 4 years and an inflation rate of 12 percent in 2020 and of 9.8 percent by the end of the strategy period in 2022.
IMF published this month a study which found that “the use of short-term debt has been associated with a higher incidence of financial crises in the past.”
The news Agency spotted key highlights from Egypt’s plan, including that the government aims to issue between $250 million and $500 million of debt green bonds this year; it additionally plans to sell between $3 billion and $7 billion worth of international debt this quarter.
“Egypt is considering new instruments such as variable-rate bonds linked to inflation and zero-coupon securities. Also, in the pipeline are international bonds denominated in the local currency,” kojak noted
It added that the average maturity of Egypt’s sovereign debt is on track to reach 3.5 years by next June, compared with 2.8 years in the last fiscal year.
“We want to diversify our debt instruments and currencies and also our local and international investor base to enhance completion and secure the best yields,” Kohak said. “We already started increasing our net issuance of T-bonds this fiscal year.”
The Finance Ministry will also work with all relevant counterparts to improve the primary dealer system to encourage further liquidity and competition in the market, he said.
Kojak further pointed that the government is developing a medium-term revenue strategy with the support of the IMF, a plan it aims to finalize by next June. "The outlook will add clarity to Egypt’s revenue targets and assumptions behind these goals.”
“The revenue strategy includes measures to counter evasion, boost tax collection and widen the revenue base by including more economic activities and entities,” Bloomberg referred.
The plan “would allow us to come up with a consistent and efficient medium-term reform package on the revenue side that allows us to meet our fiscal and deficit targets,” Kojak said.
The objective is to maintain a stable tax policy. Egypt will also work on ensuring the progressivity of its system by “efficiently” levying taxes on growing economic sectors.