Egypt Weighs $1.5 Billion Eurobond Sale as Reserves Drop

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Egypt announced plans for an international bond sale and a cabinet minister said he prefers a weaker exchange rate to preserve falling foreign reserves.

The country plans to raise as much as $1.5 billion of bonds by year-end, Samy Khallaf, the head of the Finance Ministry’s debt management unit, told reporters on the sidelines of a conference in Cairo on Monday. It may be forced to weaken its currency in order to preserve foreign reserves amid a slowing global economy, Investment Minister Ashraf Salman said earlier in the day.

The comments came on the day Egypt’s central bank reported a second monthly decline in net international reserves, to $18.1 billion, the lowest level since March. The erosion of reserves since the 2011 ouster of President Hosni Mubarak has been offset by billions of dollars in aid and grants from Gulf Arab nations, including a $6 billion cash boost in April.

“Is it better to deplete the reserves or is it better to depreciate?” Salman said. “At this time of crisis, from an economic side, we must maintain reserves.” Any depreciation will be up to the central bank, he said. Central bank officials couldn’t be reached for comment.

President Abdel-Fattah El-Sisi’s government has been struggling to curb inflation, reduce unemployment, cut the deficit and reinvigorate foreign investments. It has enacted a series of reforms that included cutting subsidies.

Bond Sale

The government plans to tap international capital markets in the current fiscal year to help cover the budget gap, Finance Minister Hany Kadry Dimian said at the conference, repeating comments he made in August. It may also turn to Islamic bonds to help bridge the deficit, he said.

Egypt has approved a bond-issuance program of up to $10 billion at various stages, Dimian was quoted as saying by the state-run Middle East News Agency. In June, it raised $1.5 billion of Eurobonds as part of that program.

Given that no exceptional inflows are expected in the next six months, “reserves will probably come under pressure,” said Mohamed Abu Basha, a Cairo-based economist with EFG-Hermes Holding SAE, the country’s biggest investment bank.

An International Monetary Fund team is expected to visit Egypt this month to evaluate the economy and government efforts at reform, Dimian said Sunday. After the 2011 uprising, Egypt was in talks with the IMF for a loan, though the discussions didn’t reach fruition.

“The government will have to look into tapping some of these funding options” including Eurobonds, an IMF loan or attracting foreign funds to the local debt market, Abu Basha said.

The yield on the nation’s 5.875-percent Eurobonds due in 2025 advanced three basis points to 6.08 percent and the benchmark EGX 30 Index for stocks fell 1.5 percent yesterday. The pound has been pegged at 7.83 per dollar for more than two months.

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