Macro Analysis /

Debt Monitor: A heavy but sustainable burden

    Al Ahly Pharos Securities Brokerage
    31 July 2019

    Our Q2 FY 18/19 Egypt debt monitor includes the following: 

    • Total debt review
    • External debt review
    • Domestic debt review 
    • Domestic debt vehicle analysis
    • Overview of the government’s medium-term debt control strategy
    • Debt sustainability and risk assessment

    Key highlights:

    • Egypt’s debt reached EGP5.8tn (US$326bn) and 125% of GDP as of Q2 FY 18/19, and constitutes a burden on the economy as debt service takes up as much as 48% of the state budget for FY 19/20. 
    • External debt stands at US$96.6bn as of Q2 18/19 and is mostly long term, denominated in US$ and owed to multilateral organisations and Arab countries. It represents 37% of GDP as of Q2 2018/19.
    • Debt service for external debt is heavy and the Ministry of Finance presents a front-loaded repayment plan, with payment dues peaking in FY 19/20.
    • Domestic debt is EGP4.1tn (US$229bn) as of Q2 18/19, and represents 70% of total debt and 88% of GDP. Its share of GDP is slowing down. 
    • Debt is transitioning to longer tenors to reduce debt cost, and the yield curve is starting to invert. 
    • The Ministry of Finance’s medium-term debt control strategy for FY 19/20, 20/21, 21/22 aims at decreasing the cost of issuing government debt securities, reducing refinancing risk and deepening the market with new regulations, reforms and new instruments. 
    • The IMF evaluated Egyptian debt as sustainable with moderate risks, while public debt/GDP ratio remains at 102%, above the 50% benchmark for EM.
    • Total debt is projected to fall to 95% by FY 2022/23 from 125% in FY 18/19, conditional upon continuing fiscal consolidation and favourable debt dynamics.