Standard & Poor's warns of risks of cost of Egyptian debt

CAIRO – 6 September 2021: Credit rating agency Standard & Poor's warned in a report on Sunday that Egypt must find a way to reduce its debt payments if it is to withstand a possible increase in global interest rates.

This comes as Egypt enjoys the highest differential between nominal interest rates and inflation among more than 50 economies followed by Bloomberg, making Egyptian bonds and treasury bills among the preferred instruments among international investors hungry for yield.

Foreign holdings of Egyptian banknotes amount to more than 28 billion dollars, which is an important barrier as tourism awaits a full recovery from the Corona virus pandemic, according to Bloomberg.

But the world's highest real interest rates also come with a high financial cost and leave Egypt vulnerable to large outflows if interest rates rise in developed countries — particularly if the US Federal Reserve gradually reduces quantitative easing policies faster than expected, according to Standard & Poor's Associate Director Zahabia Gupta.

According to Gupta, Egypt's interest-to-revenue ratio and interest payments as a percentage of GDP are among the highest among all rated sovereigns. She said, "Egypt's potential path to lower the interest bill is to increase investor confidence in its economic model so that investors reduce the risk premium they demand on Egyptian government debt.