Jump in Egypt’s foreign debt “no surprise,” still in safe boundary

CAIRO – 3 April 2017: Egypt will repay $11.2 billion worth of matured short-term foreign debt by the end of 2017, a figure which seems shocking as the country is struggling to overcome a foreign currency shortage which has crippled the economy over the past two years, but some economists argue that it remains in safe boundaries.

Egypt’s foreign debt soared by 40 percent to hit $67 billion by the end of December compared to $48 billion a year earlier, the Central Bank of Egypt (CBE) announced in a Sunday report.

To fill a fast growing budget deficit, the government has expanded its borrowing from local banks and international lenders over the past few years to fill the gap that is projected to record 322 billion ($17.7 billion) by the end of the current fiscal year (to end June 30).

In November, authorities allowed the Egyptian pound to free-float, along with other painful economic reforms including the introduction of a value added tax and slashing fuel subsidies in an attempt to reinstate macroeconomic stability and lure fresh foreign investment to revive the economy. The reforms helped the country clinch a $12 billion deal with the International Monetary Fund to support is ambitious economic reform plan.

The fund disbursed $2.7 billion to Egypt as a first tranche of the $12 billion loan. The second tranche is expected in June, after an official review of by the fund.

Despite the significant hike in foreign debt, some economists argue it was expected given the government’s heavy dependence on net borrowing. “The recent increase in the external debt level was no surprise,” Pharos Holding economist Ramy Oraby said in a report.

Oraby credited the hike mainly to “the government and the CBE’s external borrowings, which represented 83.9 percent of the total external debt in the second quarter of FY 2016/17.”

However, there is a positive outlook for the external debt being predicted to improve as the exchange rate stabilization, would reduce the external debt to GDP ratio, and a rise in foreign currency inflows would also outpace the accumulation of external debt gradually boosted by the progress in the economic reforms, he explained.

Cairo recently received fresh financing from multilateral banks: $1 billion from the World Bank, the second tranche of a $3 billion-loan agreement, and $500 million from the African Development Bank.