Foreign investments in Egypt’s debt pile are expected to hit $20bn by the end of the current fiscal year, Amr El-Garhy told Daily News Egypt.
In an interview at his office in Cairo, El-Garhy expressed his confidence about the expected foreign inflows as the government goes on its reform programme.
“Foreign investment in Egyptian debt is expected to stand at $20bn. They inject more cash as they are confident about the future. This is important evidence that we are restoring their confidence after years of turmoil,” El-Garhy added.
The governor of the Central Bank of Egypt (CBE), Tarek Amer, said that the volume of foreign investment in Egypt’s debt instruments rose to $15bn since the liberalisation of the exchange rate.
Foreign currency inflows into Egypt’s debt and equity market have already been steadily growing since the CBE removed restrictions on the currency and raised interest rates in November before the securing of a $12bn loan from the International Monetary Fund (IMF).
“We are getting more intention from investors. I expect an uptick also in foreign direct investments (FDIs) in the few coming months,” El-Garhy added.
Investors have poured money into Egyptian debt and equities since authorities started overhauling the economy by removing most currency restrictions, raising interest rates, and cutting fuel subsidies.
Foreign reserves surged to a record of more than $36bn in August, with the debt market attracting over $15bn in foreign inflows.
Egypt funding gap to hit $12-14bn
Egypt funding gap is expected to hit $10-12bn in the current and next fiscal year, El-Garhy said.
“Our expectations for the funding gap when we started our reform programme to come in $34-35bn, now we expect about $12bn for the current fiscal year,” El-Garhy explained.
The funding gap is the amount of money needed to fund the ongoing operations or future development of a business or project that is not currently provided by cash, equity, or debt.
Funding gaps can be covered by investments from venture capitals or angel investors, equity sales, or through debt offerings and bank loans.
“For the current fiscal year, we expect it to stand at $12bn. For the current and next, it should hover around $12-14bn,” the minister added.
“The ministry eyes all alternatives to bridge the gap,” the minister told Daily News Egypt.
According to Egypt’s economic reform programme, the funding gap is to reach $30bn over three years, ending on 30 June 2018.
“We consider all options to bridge this gap including going back to international debt market again,” El-Garhy added.
Egypt raised $3bn in a Eurobond sale on Wednesday, about twice as much as targeted and at a lower cost than when the same bonds were first sold in January, a sure sign that foreign appetite for the country’s debt is growing as it makes economic reforms.
Last May, Egypt returned to international debt markets and raised $3bn from a Eurobond sale to cover its financing needs following its successful sale earlier this year of $4bn in five-, ten- and thirty-year bonds.
The country has sought to lure back foreign investors following the 25 January Revolution, which drove them away.
“The sale of bonds plus anticipated payments from foreign institutions means we have largely succeeded in plugging the financing gap—at least for the current fiscal year,” the minister added.
Egypt signed a three-year $12bn IMF programme in November attached to reforms including a value-added tax (VAT) and subsidy cuts to curb the budget deficit, moves the IMF said would boost the country’s fiscal position.
Egypt has been negotiating billions of dollars in aid from various lenders to help revive an economy hit by political upheaval and to ease a dollar shortage that has crippled imports and hampered its recovery.
Inflation to embark on easing towards 15%
El-Garhy seemed to be confident about a downward trend for the inflation in the few coming months.
“Inflation has started its downward trajectory. Prices will continue to go down and citizens to feel that soon,” El-Garhy said.
Egypt’s key inflation indicators dropped in August from the multi-decade highs they reached in July, when energy prices were raised as part of the IMF-backed reforms.
Annual urban consumer price inflation dipped to 31.9% year-on-year in August from 33.0% in July, the Central Agency for Public Mobilization and Statistics (CAPMAS) said.
Core inflation, which strips out volatile items like food, decreased to 34.86% from 35.26%, according to the CBE.
“I think headline inflation will hover around 15% by the end of the current fiscal year,” El-Garhy confirmed.
Inflation soared in July to its highest since 1986 after the government cut fuel and energy subsidies.
When El-Garhy was asked about the timing of cutting fuel subsidy again, he said, “At the current stage, for the current fiscal year, there will be no hikes in fuel prices.”
He noted out that the oil prices in global market enabled the government to sustain the current prices.
Fuel subsidy cuts were a condition of a $12bn, three-year loan program agreed last November with the IMF, which included subsidy cuts, tax increases, and looser capital controls.
New programme for international bonds
When El-Garhy was asked about the timing of tapping the debt market, he said that he will introduce a new programme for bonds for the cabinet after the end of the current programme.
El-Garhy said also that Egypt plans to raise €1.5bn from the country’s first sale of euro-denominated bonds.
The possible sale would happen before the end of November, El-Garhy told Daily News Egypt.
With local borrowing costs above 15%, Egypt is increasingly looking at international debt markets to capitalise on growing investor confidence after it floated its currency and cut costly energy subsidies.
“All options are on the table to plug any funding gap,” El-Garhy added.
“The round-show for the new euro bonds will start in November ahead of the vacation season in Europe,” El-Garhy confirmed.
When he was asked about the timing of tapping the international debt market using the new programme, he said that could happen as of next February.
Investors’ sentiments are on the rise
“We are getting noticed by new investors. Once, when I was in a call with 150 of them on the phone, they were all eager to inject cash in the Egyptian market,” El-Garhy said.
When he was asked about the reason behind FDIs concentrating only on the oil sector, and financial services, El-Garhy said that the other sector will soon get the attention of the investors.
Egypt’s net FDIs rose by 14.5% to $7.9bn in the fiscal year 2016-17 that ended on June 30, the CBE said.
That was well below Egypt’s target of $10bn as the North African country continues to struggle to attract foreign investment following the 25 January Revolution.
There was a “$2.3bn rise in net inflows for oil sector investments to $4bn,” the bank said in a statement.
Egypt paid about $2.2bn in arrears owed to foreign oil companies in the second half of 2016-17, which helped attract investors to the sector.
El-Garhy expected FDIs to hit $10bn by the end of the current fiscal year.