13 April 2022; MEMO: Egypt is expected to become the largest issuer of sovereign debt among emerging markets with issues amounting to $73 billion during the current fiscal year, says S&P Global Ratings, the international credit rating agency. This will exceed what it borrowed last year through the sale of bonds by about $10bn.
The statement from S&P comes amid a challenging economic crisis in Egypt, which the government in Cairo has tried to ease by reducing the value of the Egyptian pound against the dollar and raising interest rates. This hasn't worked as hoped, so the regime of Abdel Fattah Al-Sisi is moving to expand borrowing to cover its financial needs.
The impact of the pandemic, the war in Ukraine and the high fiscal deficit will increase Egypt's need for cash. This will probably see it overtake Turkey as the largest issuer of sovereign debt in the region.
The problem is that the loans taken by Egypt are not to fund productive projects that will help to extricate the country from the vicious cycle of debt in which it finds itself. The new loans will pay off old debts, the level of which means that the country will be more sensitive to rising global interest rates.
Egyptian public debt has witnessed a significant increase in recent years. Domestic and foreign debt amounted to EGP 5.66 trillion during the fiscal year 2020/2021, equivalent to $362bn and representing 90.6 per cent of the total GDP of EGP 6.4 trillion.
The biggest fear among experts is the increase in the volume of foreign debt, especially considering Egypt's limited foreign exchange resources. Foreign debt has increased radically under Sisi's government, from $46bn in June 2014 to $137.9bn in June last year. As a result, the ratio of foreign debt to GDP in 2020 was about 35 per cent, compared with 15 per cent in 2010.
Egypt is currently knocking on the doors of all allied countries and international institutions to obtain financial support. Saudi Arabia has responded by lending Cairo $5bn. Negotiations are being held with the International Monetary Fund for a new loan to ease the difficult economic situation.
The statistics reveal that by the end of 2022, every Egyptian citizen will owe more than 71,000 Egyptian pounds ($3,900). According to official data, the average annual income in Egypt is 20,000 pounds. The question being asked now is whether new foreign debt will help to ease this financial pain.
