Tuesday, November 07, 2017 9:26AM /FBNQuest Research
As the Egyptian
government looks to make its third drawing under its extended fund facility
(EFF) worth the equivalent of US$12bn with the IMF, signed last November, we
offer a view on the course of action that the FGN declined to follow. We last
commented on the two alternative paths three months ago (Good
Morning Nigeria, 14 August 2017).
Egypt’s move to a more flexible exchange-rate regime and its cut in subsidies
have fed into inflation (see chart). The Fund sees the headline rate at a
little above 10.0% y/y by the end of the 2017/18 (July-June) fiscal year.
The EFF unblocked
foreign lending such that public external debt increased by US$23bn to US$79bn
in the 12 months to June 2017. The rise was largely made up of US$8bn from
international and regional bodies (such as the Fund), US$5bn from Egyptian
bonds (such as the Eurobond issue in January) and US$5bn in short-term capital.
The stock of external debt is 33% of GDP.
domestic debt amounted to EGP3.16trn (US$180bn) at end-June. If we narrow the
stock down to Treasury paper, and so comparable to the Nigerian data, we still
have a ratio above 90% of GDP.
There have been
some promising developments on the external balance sheet. FDI inflows rose by
14% y/y in 2016/2017. Portfolio inflows reached US$16.0bn in the period,
compared with –US$1.3bn the previous year. Tourism receipts were US$5.5bn in
January-September 2017 despite the security issues, a healthy increase from the
has therefore racked up some early wins and can draw, unlike the FGN, on the
backing of the Gulf states. The EFF has given it better access to international
capital than Nigeria. Yet its fiscal challenges and debt burden are also far
greater, so it has much less time to transform the economy by attracting
investment and to put the public finances on a sustainable footing.