Egypt is among the emerging markets “most vulnerable” to debt default

Egypt is among the emerging markets “most vulnerable” to debt default as COVID-19 borrowing pressures state finances, a Financial Times report says.

The Financial Times report says Egypt, Zambia, and Ghana are the three emerging economies with the greatest risk of defaulting on sovereign external debt in the next year, citing Absolute Strategy Research’s Adam.

Wolfe also sees “elevated levels of risk” for default with South Africa, India, Nigeria, and Brazil. Out of the 20 EM economies with the largest financing requirements in 2020, Egypt leads the pack with the ratio of its maturing debt and fiscal deficit to GDP nearing 40%, according to Oxford Economics and IMF figures cited by the Financial Times.

These countries will be forced to choose between cutting back state spending in the next few years and asking for debt restructuring, analysts say, as their budget deficits have soared on the back of massive public spending increases since the onset of the pandemic.

For now, a pickup in capital inflows to EM bond markets has helped address immediate financing needs but is essentially pressing the “snooze” button on fiscal pressure, and is expected to result in “exacerbating their future budget problems by increasing debt interest costs and repayments.”

The FT report that was titled “Developing nations squeezed as virus fuels public spending” said “some of the world’s largest developing economies are set to face a fiscal crisis in the coming years unless they can roll back huge increases in public spending enacted in response to the Covid-19 pandemic, analysts have warned.”

In mid-May, the World Bank Group’s board of directors approved a $50 million loan to Egypt to finance emergency response activities related to the coronavirus (COVID-19) pandemic.

Egypt has been eligible to receive $50 million loan, the maximum funding allowed for countries with population of 100 million, according to a statement released by the Ministry of International Cooperation on Sunday. Volume 0%

The funding was supposed to be used to purchase and distribute medical equipment supplies and strengthen precautionary measures and medical diagnostic services to help combat the spread of the virus.

This loan comes a few days after of the IMF approval of Egypt’s request for emergency financial assistance of US$ 2.772 billion!!

Commenting on this news, the former Egyptian Minister of Investment Yehia Hamed published a tweet in which he criticized the large and fast loans obtained by the Egyptian regime.

On May 11, the Executive Board of the IMF approved Egypt’s request for emergency financial assistance of US$ 2.772 billion to meet the urgent balance of payments needs stemming from the outbreak of the COVID-19 pandemic.

On 26 June, the Executive Board of the International Monetary Fund (IMF) approved today a 12-month Stand-by Arrangement for Egypt, with access equivalent to SDR 3.76 billion (about US$5.2 billion or 184.8 percent of quota).

The IMF then said the new arrangement aims to help Egypt cope with challenges posed by the COVID-19 pandemic by providing Fund resources to meet Egypt’s balance of payments needs and to finance the budget deficit.