Empire

Dedicated to tracking Africa’s wealth, monitoring stories of people, platforms and processes shaping Africa’s financial fortunes. Put the other way round, this is where we follow the money.

Egypt to introduce new public debt management strategy

Egypt plans to introduce a new public debt management strategy aimed at reducing the country’s public debt to less than 89 percent of GDP.

Egypt’s public debt averaged $3.8 billion from 1997 until 2018, reaching an all-time high of $9.3 billion in the third quarter of 2018. External debt alone stood at 36.8 percent of GDP at the end of June, having increased over the year by 11.6 percent.

Egypt currently pays about 6 percent interest on its 12-year Eurobonds and between 18 and 20 percent on its Egyptian pound-denominated Treasury bills. The country’s outstanding dollar and euro-denominated bonds have reached $23.2 billion and €2 billion respectively on international markets.

Egypt’s crushing debt burden is reflected by the high cost of servicing it. In 2017, interest payments absorbed 31 percent of the budget. By 2018, debt servicing was eating up almost 55 percent of all government revenues and the government plans on changing that with the new public debt management strategy.

From the final account of the 2017/2018 budget released by the Plan and Budget committee of the House of Representatives, Egypt witnessed an increase in expenditure from EGP 104.23 million ($6.03 million) to EGP 13.42 million ($7.61 million).

The results showed an increase of 16.2 percent, a total usage of EGP1.53 billion ($88.57 million) in 2017/2018 compared to EGP1.31 billion ($75.83 million) in 2016/2017. Repayment of loans fell by 2.3 percent from EGP 273.2 billion ($15.77 billion) in 2016/2017 to EGP267.6 billion ($15.45 billion) in 2017/2018.

In addition to the debt management strategy, Egypt’s Finance ministry will also start applying the amendments to income taxes on bank investments with bills and treasury bonds as the country plans to conclude everything relating to the general budget for the 2019/2020 fiscal year, which will start July.

According to the country’s Minister of Finance, Mohamed Maait, the new budget will include: reforming the state administration wage system, reducing the deficit and increasing governmental investments, especially in the health and education sectors.

The size of pension debts is also to be determined, as a committee from the Ministries of Finance and Solidarity and the Central Auditing Organization has been set up for that purpose. The results of the study from the ministries are to be presented to President Abdel Fattah el-Sisi within 30 days from March 24. The study is to include a wage reform plan that will also be implemented in July.

Egypt has been pursuing ambitious programs and should the debt management strategy be effective, it could lead to high economic growth as well as increase the country’s capacity to repay external and domestic debt. With Egypt’s proposed strategies, the Internation Monetary Fund in 2018 anticipated that Egypt will be able to achieve a growth rate of 5.5 percent this 2019, reaching a record of 6 percent in the year 2023.