Egypt to borrow $73 billion in 2022, S&P Ratings report

Global sovereign borrowing will reach $10.4 trillion in 2022, nearly a third above the average before the coronavirus pandemic, S&P Global Ratings has stated in a recent report that also expected that Egypt’s bond sales will soar up to $73 billion in 2022.

In the Standard & Poor’s Global Ratings report published on 5 April, the S&P Ratings analysts predicted that Egypt, which has recently sought IMF assistance, will overtake Turkey as the largest issuer of sovereign debt in the region, where it is expected that Egyptian government’s bond sales will reach $73 billion in 2022.

“We expect borrowing to stay elevated, owing to high debt-rollover needs, as well as fiscal policy normalization challenges posed by the pandemic, high inflation, and polarized social and political landscapes,” said S&P Global Ratings credit analyst Karen Vartapetov.

According to the report, Egypt, which has recently sought IMF assistance, is set to overtake Turkey as the region’s largest issuer of sovereign debt, with $73 billion worth of bond sales, S&P analysts forecast.

Among larger countries globally, Kenya, Egypt and Japan have the biggest share of debt that needs to be rolled over this year, the analysts said, pointing to short-term debt of 26% and 30% of total debt stocks in Egypt and Kenya respectively.

Meanwhile, commercial debt in EMEA emerging markets is set to increase to 37% of GDP from 31% in 2016, boosted by pandemic-related costs, a rise in commercial borrowing in Oman and Saudi Arabia and “persistently high fiscal deficits” in Egypt and Romania.

It is noteworthy that the Egyptian government on 23 March 2022 formally requested support from the International Monetary Fund (IMF) to help mitigate the economic repercussions related to Russia’s recent invasion of Ukraine.

Since 2016, the IMF has approved 3 loans to Egypt, totaling $20 billion.

Also, data from the Central Bank of Egypt (CBE) last Sunday showed that the Egyptian net foreign reserves witnessed a sharp decline in February, where they decreased by $3.29 billion (EGP 60 billion).

In its second annual Sovereign Debt Index, the S&P Global Ratings stated that despite an economic recovery, borrowing will stay elevated because of high debt rollover requirements and war in Ukraine, the ratings agency said in an annual note.

While 137 countries will borrow an equivalent of $10.4 trillion in 2022, an estimated 30% lower than 2020, the overall figure is one-third higher than average borrowing between 2016 and 2019, S&P report stated.

“Tightening monetary conditions will push up government funding costs,” S&P analysts said.

“This will pose additional difficulties to sovereigns that have been unable to restart growth, reduce reliance on foreign currency financing, and where interest bills are already critically high on average.”

Borrowing in the economies of emerging Europe, Middle East and Africa (EMEA) will rise $253 billion to the equivalent of $3.4 trillion by the end of the year, S&P said in an accompanying report on Thursday.

Across emerging markets, JPMorgan analysts said in a note on Monday, the corporate default rate could reach 8.5% this year, more than double the 3.9% they expected before Russia invaded Ukraine and the highest since the global financial crisis.

Gov. to borrow EGP 634bn in 4Q of FY2021/22

In the same context, the Egyptian government intends to borrow EGP 634bn from the local market during the last quarter (4Q) of FY2021/22, reported Daily News Egypt.

According to the government’s plan, the Ministry of Finance intends to issue 52 bids for treasury bills worth EGP 555.5bn and 35 bids for treasury bonds worth EGP 78.5bn during the period from 1 April to the end of June 2022.

The Central Bank of Egypt (CBE) — which will undertake this task on behalf of the government — will issue in April bids for bills and treasury bonds worth EGP 194bn, bids worth EGP 244bn in May, and bids worth EGP 196bn in June.

According to the plan, most of the issuances of treasury bills will be for short-term bids, as the ministry is scheduled to issue bids worth EGP 175bn for a term of 91 days, EGP 159.5bn for a term of 182 days, and EGP 123bn for a term of 273 days. It is also scheduled to issue 364-day-long bills worth EGP 98bn.

The finance ministry also intensified the offering of short-term bonds significantly during 4Q of FY2021/22, where it is scheduled to issue ‘Zero Coupon’ bonds for a period of one and a half years at a value of EGP 61.5bn.

It is also scheduled to offer three-year bonds worth EGP 6.75bn, five-year bonds worth EGP 6bn, seven-year bonds worth EGP 2.5bn, and 10-year bonds worth EGP 1.75bn.

The banks operating in the Egyptian market are the largest sectors investing in bonds and treasury bills, which the government periodically offers to cover the state’s general budget deficit.

These bonds and bills are offered through 15 banks that participate in the primary dealers system in the primary market, which resell part of them in the secondary market to individual investors and local and foreign institutions.

In the same context, the ministry revealed that the volume of outstanding balances of domestic treasury bills and bonds reached about EGP 3.901 trillion until the end of February 2022.

According to the latest report published by the ministry on its website, the volume of outstanding balances of treasury bills until the end of last February was about EGP 1.462 trillion, with EGP 938.332bn in 364-day bills, EGP 362.595bn in 273-day bills, and EGP 114.437bn in 182-day bills, in addition to EGP 47.475bn in 91-day bills.

According to the finance ministry, bids for bills amounting to about EGP 138.1bn were due during the month of March, while the rest of the existing bids will be due throughout the remainder of the current year until 21 February 2023, taking into account that other bills with the same maturities are re-issued on a periodic weekly basis.

This comes as the ministry revealed that the volume of outstanding balances of treasury bonds reached approximately EGP 2.439 trillion by the end of February 2022, of which about EGP 189.477bn are Zero Coupon bonds.

According to the Ministry of Finance, these bonds are due from 3 April until 18 January 2037, taking into account that other bond bids are re-issued on a periodic weekly basis, just like the bills.

The ministry started offering these bonds from 3 April 2012 to 18 January 2022, and the average return rate on them reached 14.706%, while the average coupon price on Zero Coupon bonds reached 13.687%.