Egypt highlights external debt decline, institutions positive expectation for state

The Media Center of the Cabinet issued a report that included infographics highlighting Egypt’s external debt decline, which enhances the arrival of foreign debt rates to the best level in years.

According to the report, Egypt succeeded in reversing the external debt curve, to record a decline for the first time in more than 4 years, as the total external debt decreased in the first quarter of 2020 by 1.2 percent, on a quarter-on-quarter (QoQ) basis.

The report noted that the total external debt increased 9.9 percent during the first quarter of 2019, compared to the previous quarter, and 6.4 percent in the first quarter of 2018 on QoQ, and 9.8 percent in the first quarter of 2017 on QoQ, and 11.8 percent in the first quarter of 2016 on QoQ.

It highlighted the decrease in the ratio of short-term debt to total external debt, which reached 9.3 percent in the first quarter of 2020, compared to 11.7 percent in the first quarter of 2019, 13 percent in the same quarter of 2018, and 17.1 percent in the same quarter of 2017, and 12.8 percent in the same quarter of 2016.

Moreover, the ratio of short-term debt to net international reserves decreased, reaching 25.7 percent in the first quarter of 2020, compared to 28.1 percent in the first quarter of 2019, 27 percent in the same quarter of 2018, and 44 .2 percent in the first quarter of 2017, and 41.3 percent in the same quarter of 2016.

“The low levels of short-term foreign debt contribute to making the financial conditions of the economy stable and not subject to deterioration,” the report cited the International Monetary Fund (IMF).

Meanwhile, the report highlighted the economic indicators that contributed to the improvement of the external debt performance thanks to the success of the economic reform program, represented by the decline in the dollar exchange rate against the pound by 10.7 percent to reach LE 15.8 at the end of September 2020, compared to LE 17.7 at the end of September 2017.

It added that the foreign exchange reserves increased by 6.4 percent to reach $ 38.4 billion in August 2020,  compared to $ 36.1 billion in August 2017, noting that reserves reached $ 45.5 billion in February 2020 - before the Coronavirus crisis – marking an increase of 71.7 percent, compared to the same month of 2017.

The increase in tourism revenues also contributed to the improvement in the performance of foreign debt, which rose by 76.9 percent, reaching $ 2.3 billion during the first quarter of 2020, compared to $1.3 billion during the same quarter of 2017, according to the report.

It also referred to the increase in remittances from expatriates contributed to the improvement in the performance the external debt. The remittances increased by 36.2 percent to reach $ 7.9 billion during the first quarter of 2020, compared to $ 5.8 billion during the same quarter of 2017.

 In addition, commodity exports increased by 21.8 percent to reach $ 6.7 billion during the first quarter of 2020, compared to $ 5.5 billion during the same quarter of 2017.

The Suez Canal revenues increased by 16.7 percent, recording $ 1.4 billion during the first quarter of 2020, compared to $ 1.2 billion during the same quarter of 2017, the report added.

Regarding the positive accusations and expectations of the most prominent international institutions for improving Egypt's external debt performance, the report stated that the Economist expected that Egypt's external debt performance would be among the best rates compared to emerging markets in the world and the best in the region in 2020.

For its part, the IMF indicated that despite expectations of an increase in Egypt's external debt as a percentage of GDP in 2020/2021, it will continue to gradually decline until it reaches 25.3 percent in 2024/2025.

Fitch also praised the continuous accumulation of foreign exchange reserves in Egypt, stressing that it reflects its ability to cover its short-term payments in foreign currency.

For its part, Moody's stated that the existence of a broad domestic financing base in Egypt and a strong foreign exchange reserve that exceeds external debt payments over the next year would help to overcome the periods of capital outflows as a result of the Corona crisis.

Also, BNP Paribas confirmed that the liquidity of foreign currencies within the banking system has improved significantly in recent months, which led to the strengthening of the pound, and an increase in the ability to repay foreign debt in the short term.

In a related context, the report noted that Egypt's external debt is among the best compared to emerging markets in the world, by the end of March 2020, as it recorded 31.7 percent as a percentage of GDP.

The report highlighted that the external debt of Brazil recorded 18.6 percent, India recorded 20.6 percent, the Philippines 21.4 percent, and Russia 27 percent.

South Korea's foreign debt was recorded at 29.9 percent, Thailand 32.4 percent, Pakistan 34.4 percent, Indonesia 34.5 percent, Peru 35.1 percent, South Africa 44.1 percent, Colombia 44.2 percent, and Hungary 50.2 percent.

The report also showed that Turkey's external debt recorded 56.9 percent, Poland 59 percent, Argentina 62.6 percent, Malaysia 64.4 percent, and Chile 82.9 percent, noting that the countries were chosen according to Morgan Stanley's emerging market classification.