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Egypt just incurred a $4bn international debt, but financial troubles growing

Seeking to fund its budget gap, Egypt selected on 28 December five banks to manage a Eurobond sale of about $4 billion, as announced by the finance ministry.

The government selected HSBC Holdings Plc, Citigroup Inc., JPMorgan Chase & Co., Morgan Stanley and the National Bank of Abu Dhabi for the sale scheduled around January, according to the finance ministry.

“With yields on local treasury bills above 17 percent, Egypt is tapping international debt markets to help narrow its fiscal deficit by reducing interest expenses. It has raised $7bn from the sale of U.S. dollar-denominated Eurobonds this year, and it is planning a debut euro-denominated bond sale worth about 1.5bn euros in the next three months,” said Bloomberg News.

But what does Egypt need the money for?

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Increased cost of import

According to Reuters, Egypt is suffering from foreign liquidity, mainly US dollars, which is making it difficult for the country to import its basic needs, and therefore it is actively looking to raise funds such as from development loans or foreign grants.

Egypt imports more than it exports and food and energy makes up about 1/5 of the country’s import bill, Amr Adly, economist and visiting scholar at Carnegie Middle East Center, was quoted by the Middle East Eye, a regional news site, as saying.

The other problem is that Egypt subsidizes food and energy imports at a time when the country is facing a recession that has extended for five or six years now.

While it may not be able to remove all the subsidies at once, the Egyptian government still needs cash to import and support the local economy.

Egypt’s annual inflation in November stood at 26% yoy, according to Trading Economics, coming a result of the Egyptian pound being floated last November, all part of a reform plan linked to a $12bn IMF loan.

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Declining tourism

Following the 2011 revolution, Egypt saw a sharp decline in tourism which is an important source of revenue for the government.

DW, Germany’s international broadcaster, estimated revenues from tourism in the first half of 2017 to be 70 percent lower than it was in 2010, before the beginning of the Arab Spring uprisings.

“The annual average hotel occupancy is reaching 30 percent at best and tens of thousands of workers have been fired,” it said.

Political dispute with Qatar

Egypt is also certainly incurring losses from cutting its ties with Qatar. 

According to a study by Al Mubasher, a Saudi publication, the trade exchange volume between Qatar from one side and Egypt, Saudi Arabia, UAE, and Bahrain from the other side became threatened after the aforementioned countries cut their ties with Qatar.

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According to figures from the Ministry of Development Planning and Statistics, trade exchange volume between those countries amounted to QAR 33.690bn ($9.2 bn) in 2016.

Al Mubasher said that Qatar’s imports from Egypt amounted to QAR 1.2 billion ($329 million) with exports reached QAR 3.96 bn ($1.09 bn) in 2016.

Financing projects

Egypt is very active on infrastructure projects and this may have tied up government expenses in a way that it needed to find alternative funding for the aforementioned.

It is reported that Egyptian President Abdel Fattah al-Sisi announced a $5bn construction project in the Sinai Peninsula last month.

Moreover, Egypt’s minister of transport announced last year that the country is targeting up to $17.4bn worth of investment in new rail and metro projects.

Also, the Egyptian Ministry of Water Resources and Irrigation announced in 2017 that the ministry is scheduled to carry out a total of 268 infrastructure projects at a cost of $458M to be completed by June 2018.