Egypt is considering tapping the international bond market with an issue of $2.5 billion to return deposits made by Qatar in the country's Central Bank (CBE) following the 2011 ouster of former president Hosni Mubarak, according to Minster of Finance Hani Kadri at the recent Euromoney Conference. Encouraged by the toppling of Mubarak and the election of Mohamed Morsi, a member of the Muslim Brotherhood and friend of Qatar, Doha offered Egypt a total of $8 billion in aid. This included a $2.5 billion deposit in the Central Bank in the form of bonds bearing an annual rate of 4.5 per cent interest. However, relations between Cairo and Doha worsened after the removal of Morsi last year, putting cooperation between the two countries on hold. Issuing international bonds will increase the cost of the country's debt as Egypt's credit rating, albeit witnessing some improvement recently, is still low. The low credit rating means that any debt issue will likely have to offer high yields, Khaled Amin, an assistant professor in the Faculty of Economic and Political Science at Cairo University, told Al-Ahram Weekly. Interest rates on bonds denominated in dollars on the international markets were now around six per cent, and these would probably be increased to seven per cent for Egypt, Amin commented. The exact rate would depend on the time of issuance, he said. Debt servicing has eaten up 26 per cent of the annual budget in recent years. Domestic public debt rose by LE56 billion during the first quarter of 2014, reaching LE1.7 trillion by the end of March in comparison with LE1.65 trillion at the end of December 2013. According to figures released by the CBE, debt has now reached 83.3 per cent of GDP compared to 80.6 per cent in December last year. The CBE figures also showed a 5.8 per cent rise in external debt over the same period to reach $45.8 billion. The CBE attributed the rise to the higher exchange rates for most currencies in borrowing against the dollar. Amin said that Egypt should study the international markets well to determine the suitable time for the issuance of the bonds, as well as the interest rate and the size of the issue. It might be feasible to decrease the size of the issue, he said, and it might also be preferable to strike a deal with the Gulf countries to buy a percentage of the issued bonds to encourage other investors to buy the issue. “This will give a positive message to the international markets about the Egyptian economy,” he added. While government officials said that some Arab countries had offered to be the guarantor of the bonds, it seems that the government is still considering the issue. Wael Ziada, head of the research department at EFG Hermes, a local investment bank, said that “if a country like the United Arab Emirates guarantees Egypt's dollar bonds, this will decrease the interest rate and make them attractive to foreign investors.” Meanwhile, an unnamed senior official in the Minister of Finance told local press on Monday that the government will postpone a plan to issue international bonds to repay its dues to foreign oil and gas explorers until after the investment conference to be held in Cairo next February. The decision stems from the fact that the government expects a flow of foreign investments during the conference enough to cover these dues.
