While peer Nigeria is struggling, foreign debt investors have flocked back to Egypt, reversing billions of dollars of outflows in the spring sparked by the coronavirus pandemic.
Finance minister, Mohamed Maait told the Financial Times that foreign investors now held more than $20bn in Egyptian debt.
It is an astonishing reflection of confidence in the only regional economy that appears to be pressing the right buttons when compared to Nigeria’ Africa’s biggest economy. A working paper by IMF’s Amr Hosny said as at end of 2018, foreign investors held a little below 20% of all Nigeria’s outstanding domestic debt instruments but that has changed significantly with investors in flight.
Egypt is the only regional economy that has grown this year despite damage to key sectors such as tourism.
Analysts had reported that international holdings of Egyptian debt fell to $7bn in May. “We see this in the reaction of investors when we go to international financial markets and in the way they receive issuances of Egyptian treasury bills,” said Mr Maait in an interview in which he hailed the government’s economic record despite the health crisis.
The IMF reported growth of 3.5 per cent in the fiscal year that ended in June Although Egypt imposed a relatively loose lockdown, the pandemic has slowed growth and decimated the tourism industry, a major source of foreign currency that brought in $13bn last year.
Remittances from Egyptians working abroad, chiefly in Gulf oil-exporters hit by the drop in crude prices as Covid-19 curbed demand, are also expected to plunge.
Unemployment rose from 7.7 per cent to 9.6 per cent in the second quarter this year, according to official figures.
But Egypt is the only country in the Middle East and north Africa region to have avoided a contraction in 2020, the IMF said this month.
“Growth is still positive and can be considered very good at a time of corona and in comparison with others,” said Mr Maait, who forecasts an expansion of 2.8 per cent to 3.5 per cent in the current fiscal year.
Egypt’s agricultural sector, which accounts for a quarter of gross domestic product, was not affected by the pandemic.
The swift resumption of public investment, mostly in infrastructure, after a brief pause until early April, also boosted growth, according to Mohamed Abou Basha, head of Macroeconomic Analysis at EFG-Hermes, the regional investment bank.
Construction and public works have been leading drivers of expansion in recent years, economists say. Even before the pandemic Egypt had been able to lure international debt investors with some of the highest yields in the world.
Interest rates on the country’s six-month treasury bill sold on Thursday averaged 13.45 per cent. Foreign investors pulled more than half of their money from the Egyptian debt market after coronavirus struck, with their holdings of Egyptian treasuries plummeting to $7bn in May from a peak of $20bn in February, said Moody’s Investor Service, the rating agency, in a report in August.
Sentiment improved after the country secured around $8bn in IMF funding, including almost $3bn in emergency finance. Earlier on, Nigeria received $3.4bn in credit from the same IMF but it was not enough to stem the exit of foreign portfolio investors from the country.
“Investors in Egypt’s debt market are lured by the elevated yields [and] also by the stable Egyptian pound . . . and commitment to reforms given the finalisation of a new IMF program,” said Mr Abou Basha.
Farouk Soussa, Middle East and north Africa economist at Goldman Sachs, said that despite Egypt’s debt pile, equivalent to 87 per cent of GDP, “there is confidence in the fact that most of it is domestic and there is a lot of capacity in the Egyptian banking sector to keep on rolling it over”.
Mr Maait said debt to GDP ratios were on a downward trend despite the impact of coronavirus. The country was also making progress on curbing its deficit, he said.
The measure widened to 7.9 per cent of GDP compared to a government target of 7.2 per cent in the fiscal year ending in June, according to official figures, but was below last year’s 8.2 per cent.
“It is true corona is slowing us down in reaching our aim, but we continue to reduce the deficit,” he said.
“If I compare with others . . . their deficit has increased.” But the positive economic news has failed to translate into prosperity for ordinary Egyptians, critics say.
Official figures show that even before the pandemic, poverty had increased following a devaluation in 2016 and austerity measures linked to an IMF bailout.
The government statistics agency said in July that half of Egyptian families have had to borrow money to make ends meet since the start of the Covid-19 crisis.
Mr Maait acknowledged the economy faced difficulties in reducing poverty and creating jobs. “There are more than 100m people in Egypt, and every year we add 2.5m newborns.
The rate of economic growth is not keeping up with population growth,” he said. But the government was making progress, he added.
“The main thing is where we were and where we are now. We went through a tough period [in the early part of the decade] when there were severe gas and electricity shortages.
These problems have now been resolved.” Cairo was seeking to boost the economy by continuing monthly cash transfers to unemployed informal workers until the end of the year, increasing teachers’ salaries and disbursing subsidies to exporters, Mr Maait said. In the longer term it was building infrastructure and starting to increase spending on health and education.
“Like the rest of the world, I worry that tourism will not recover, or that international trade will not be restored to health,” he added.
“We are seeing how we can boost our exports, in agriculture for example, and there are initiatives to [encourage] tourism so that when there is an improvement in the coronavirus situation we can help speed up the recovery. But people will have to learn to coexist with the virus.”
