Arab world’s only growth outpost attracts debt investors

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Foreign investors have flocked to Egypt, reversing billions of dollars in spring cash outflows triggered by the coronavirus pandemic, according to the country’s finance minister.

Mohamed Maait told the Financial Times that foreign investors now hold more than $ 20 billion in Egyptian debt, reflecting confidence in the only regional economy that has grown this year despite damage to key sectors such as tourism. . Analysts had reported that international holdings of Egyptian debt fell to $ 7 billion in May.

“We see it in the reaction of investors when we go to the international financial markets and in the way they receive Egyptian treasury bond issues,” Maait said in an interview in which he praised the economic record of the country. government despite the health crisis. The IMF announced growth of 3.5% in the fiscal year that ended in June

Although Egypt imposed a relatively loose lockdown, the pandemic has slowed growth and decimated the tourism industry, a major source of foreign exchange that brought in $ 13 billion last year. Remittances from Egyptians working abroad, mainly to Gulf oil exporters hit by falling crude prices as Covid-19 dampened demand, are also expected to plunge. Unemployment fell from 7.7 percent to 9.6 percent in the second quarter of this year, according to official figures.

But Egypt is the only country in the Middle East and North Africa region to have avoided a contraction in 2020, the IMF said this month.

“Growth is still positive and can be considered very good in times of corona and in comparison to others,” said Maait, who forecasts an expansion of 2.8% to 3.5% for the current exercise.

Egypt is struggling to reduce poverty and create jobs amid high population growth, said Finance Minister Mohamed Maait © Khaled Elfiqi / EPA / Shutterstock

Egypt’s agricultural sector, which accounts for a quarter of gross domestic product, has not been affected by the pandemic. The rapid resumption of public investment, mainly in infrastructure, after a brief hiatus until early April, has also boosted growth, according to Mohamed Abou Basha, head of macroeconomic analysis at EFG-Hermes, the regional investment bank. . Construction and public works have been the main drivers of the expansion in recent years, economists say.

Even before the pandemic, Egypt had been able to attract international debt investors with some of the highest yields in the world. Interest rates on the country’s six-month Treasury bills sold on Thursday averaged 13.45 percent.

Foreign investors withdrew more than half of their money from the Egyptian debt market after the coronavirus strike, their holdings of Egyptian Treasuries tumbling to $ 7 billion in May from a high of $ 20 billion in February Moody’s Investor Service, the rating agency, said in a report in August.

Sentiment improved after the country secured about $ 8 billion in IMF financing, including nearly $ 3 billion in emergency funding.

“Investors in the Egyptian Debt Market Are Attracted by High Yields[and]also by the stable Egyptian pound. . . and commitment to reforms in view of the finalization of a new IMF program, ”Abou Basha said.

Workers at a food bank in Cairo prepare packages for Egyptians who lost their jobs during the pandemic. Critics say the positive news has not translated into prosperity © Mohamed El-Shahed / AFP / Getty

Farouk Soussa, Economist for the Middle East and North Africa at Goldman Sachs, said that despite Egypt’s debt, equivalent to 87% of GDP, “there is confidence that most of it is domestic and that there is a lot of capacity in the Egyptian banking sector to continue to overthrow it ”.

Mr Maait said debt-to-GDP ratios were on a downward trend despite the impact of the coronavirus. The country is also making progress in reducing its deficit, he said. The measure widened to 7.9% of GDP from a government target of 7.2% in the fiscal year ending June, according to official figures, but was below the 8.2% of l ‘last year.

“It is true that the crown is slowing us down to reach our goal, but we continue to reduce the deficit,” he said. “If I compare with the others. . . their deficit has increased.

But the positive economic news did not translate into prosperity for ordinary Egyptians, critics say. Official figures show that even before the pandemic, poverty had increased following a devaluation in 2016 and austerity measures linked to an IMF bailout. The government statistics agency said in July that half of Egyptian families have had to borrow money to make ends meet since the start of the Covid-19 crisis.

Mr. Maait acknowledged that the economy is struggling to reduce poverty and create jobs. “There are over 100 million people in Egypt, and every year we add 2.5 million newborns. The rate of economic growth does not keep pace with population growth, ”he said.

But the government was making progress, he added. “The bottom line is where we were and where we are now. We’ve been through a tough time [in the early part of the decade] when there were severe gas and electricity shortages. These issues are now resolved.

Cairo was looking to boost the economy by continuing monthly cash transfers to the informal unemployed until the end of the year, increasing teachers’ salaries and providing subsidies to exporters, Maait said. In the longer term, he was building infrastructure and starting to increase spending on health and education.

“Like the rest of the world, I fear that tourism is not recovering, or that international trade is not recovering,” he added.

“We see how we can boost our exports, in agriculture for example, and there are initiatives to [encourage] tourism so that when there is an improvement in the coronavirus situation, we can help accelerate the recovery. But people will have to learn to coexist with the virus. “

Carol M. Barragan

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