By Doha Abdelhamid The government has recently announced its intention to allow two multilateral funding institutions, the European Investment Bank (EIB) and the African Development Bank (AfDB), to float long-term bonds in order to finance public investments in infrastructure. In the case of the EIB, as announced, the bonds were sought to yield in euros despite borrowing from the domestic market in Egyptian pounds. Foreign exchange risk (or euro-Egyptian pound exchange rate volatility) normally adds a top-up premium to the pricing calculus. With the AfDB, it is unclear whether yields will be paid to creditors in pounds or another currency. Under both floats, borrowing will be in local currency. The same offer that is currently being studied by the government was received and studied by cabinet three years ago. Currently implemented monetary and exchange rate policies seem sufficient guarantee against exchange rate volatility. Given the attractiveness of Egypt's business climate, and that Egypt is acclaimed among creditors for its creditworthiness, also that any foreign investor is likely to add a premium to cover regional instabilities, why shouldn't we borrow on the local market via the Central Bank of Egypt? Have we arrived to our maximum borrowing ceiling after which our credit rating will have to be downgraded? The real edge of borrowing via multilaterals rests with foreign currency borrowings, which can be arranged quickly and at low cost. If the sole interest of the government is diversification for funding-specific purposes, the argument seems to defeat itself in the eyes of many. At the end of the day, both "foreign" and "local" borrowing (irrespective of currency translations) pools into the public debt portfolio, and it remains the duty of the government to find the resources to meet its obligations towards outstanding indebtedness overall. So why borrow from abroad? This week's Soapbox speaker is an economic and financial specialist.
