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Egyptian Government Looks to Make Its Third Drawings Under Its Extended Fund Facility

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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. 

Its public 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 year-earlier US$1.3bn.    

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Egypt 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. 

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