Egypt unlocks $50bn financing in two weeks, plots return emerging market favourite

Egypt is set for a return as an emerging-market darling for overseas debt investors, as the North African nation went from the brink of economic disaster to unlocking more than $50 billion of financing in the last two weeks.

On Wednesday, the central bank enacted a long-awaited currency flotation, allowing the Egyptian pound to lose more than 38% of its value against the dollar. The regulator also carried out its biggest-ever interest rate hike of 600 basis points. Within hours, the government announced an agreement with the International Monetary Fund on more than doubling its loan to $8 billion.

The expanded IMF loan is part of a $20 billion support package Egypt expects to secure from partners, including the European Union, the World Bank, Japan and the UK. Moody’s Ratings raised Egypt’s credit outlook to positive on Friday, and Egyptian stocks resumed a world-beating stock rally in the aftermath.
The currency move came after Cairo struck a $35 billion deal late last month with the United Arab Emirates. Authorities described the pact as the biggest foreign investment ever secured by Egypt and the scale took investors by surprise. The next step for the country, home to 105 million people, may be an investment from Saudi Arabia to develop land on the Red Sea coast.

Read also: Egypt steadies currency after selling land to UAE for $24bn. Pound rallies

The international aid — as well as the Gulf funding — underscores Egypt’s importance as a Middle East stalwart that’s too big to fail amid Israel’s war with Hamas and a conflict raging in neighboring Sudan. President Abdel-Fattah El-Sisi’s government is playing a key role alongside the US and Qatar in trying to halt the crisis in bordering Gaza and chart a two-state solution with Israel.

Egypt has also been particularly hammered by conflict elsewhere in recent years, with Russia’s invasion of Ukraine driving up wheat and oil import prices that drained dollar reserves, and the spillovers from the Israel-Hamas war hurting tourism and Suez Canal fees, both crucial sources of hard currency.

After shunning Egypt’s local debt and pulling $20 billion from its market a couple of years ago, money managers are ready to return to the country that now offers the third-highest yield on local-currency bonds among 23 developing economies tracked by Bloomberg, with average returns close to 30%.
Finance Minister Mohamed Maait said Monday the government is seeking to be re-included in JPMorgan’s emerging markets government bond index that attracts passive investments.