Egypt plans $2bn repurchase transaction

Set to renew financing deal with international banks

Central Bank of Egypt's headquarters in downtown Cairo. Mohamed Abd El Ghany/Reuters

Egypt plans to renew a US$2 billion financing deal with international banks while also developing alternative sources of funding such as issuing dollar-denominated Eurobonds, said the finance minister Amr El Garhy said.

The repurchase transaction, which international banks offered to increase to $5bn upon its extension, will remain unchanged in size and probably in duration, Mr El Garhy said, adding the final details are not yet confirmed.

The expected renewal fits into the government’s plans on deficit-financing and to make repayments on foreign debt, Mr El Garhy said in Washington, where he’s attending the IMF’s annual meetings. A plan to sell $4bn of dollar-denominated bonds and $1.8bn of euro-denominated debt will “most probably” take place in the first quarter of 2018, he said.

“We are diversifying our sources of financing,” Mr El Garhy said. “We might start with the dollar-denominated issuance and then we can go for the euro.”

The IMF is likely to provide another $4bn in two tranches of financing before the fiscal year ends in June, said Mr El Garhy. Egypt agreed in 2016 to a three-year $12bn IMF loan programme.

Bond sales, the IMF loans and foreign investment in Egyptian Treasury bills are central to the government’s plans to finance the deficit, which is set to narrow to 9.5 per cent of GDP during the current fiscal year.

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The government considers potential moves in international prices of imported items as the main risk to an otherwise improving fiscal outlook, said Mr El Garhy. Egypt is also contemplating a hedging mechanism to “ring fence” the budget against possible spikes in commodity prices, he said.

Egypt’s reform programme - which included November’s flotation of the currency followed by two rounds of fuel and electricity price increases - has come at a hefty price domestically in a nation where around half of the population lives at or near the poverty line. Annual core inflation remains over 30 per cent, near record highs.

Recent data on price movements are “encouraging” and suggest a move in consumer inflation to the “high teens” by January, Mr El Garhy said. The pace of price gains will likely reach the low teens around mid-2018, he said, which may pave the way for lower interest rates.