Egypt Almost Ready With ‘Fresh Story’ to Lure Bond Buyers

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  • New value-added tax, payroll cuts seen approved this month
  • Economic reforms seen drawing billions of investment dollars

Vital economic reforms designed to draw billions of dollars from international bond markets could be approved by the end of the month, a senior Egyptian government official said Tuesday.

Samy Khallaf, head of public debt in Egypt’s Finance Ministry, said he expects parliament will pass a package introducing value-added tax and public-sector payroll cuts within weeks because it’s been endorsed by officials at the “highest level.”

“We have to come to the market with a fresh story,” Khallaf said in an interview. “Once we deliver on the economic reforms we promised, we expect to see some serious interest from investors.”

Mohamed Fouad, a lawmaker from Cairo’s twin city of Giza, said additional sessions of parliament would have to be scheduled if the measures were to be discussed and approved in July. No such session has been called, he said.

Africa’s second-biggest economy plans to tap international markets for $3 billion to $5 billion in the fiscal year that started this month, with the the first tranche expected between September and March, Khallaf said.

Egypt is scrambling to increase its foreign currency resources to ease a shortage that has stifled economic activity and fueled speculation of an imminent devaluation of the pound. Central Bank Governor Tarek Amer said last week that the regulator’s policy of defending the local currency was a “grave mistake,” and that a weaker pound would benefit the nation’s ailing exporters. The stock market soared and traders in the black market for dollars pushed the premium for the U.S. currency to a record 30 percent over the official exchange rate.

Officials have postponed selling bonds since last September as the country’s borrowing costs soared. Khallaf said he’s looking for yields to decline to about the level of Egypt’s most recent sale that took place in June 2015, when it raised $1.5 billion of 10-year debt at 5.875 percent. Those bonds yielded 7.12 percent as of 3:53 p.m. in Cairo.

The cost of protecting Egyptian debt against default for five years has surged 170 basis points over the past year to 501, according to data provider CMA. That’s among the 10 most expensive in the world.

“Pricing is the most important factor for us,” Khallaf said. “Our strategy is to frequently tap the international capital markets and are keen on ensuring successful demand by international institutional investors.”

Egypt, which only has three outstanding international bonds totaling $3 billion, is struggling to dig itself out of political and economic turmoil that followed President Hosni Mubarak’s ouster in 2011. The toppling of his Islamist successor and repeated militant attacks only deepened the instability, battering investment and tourism. Foreign reserves remain more than 50 percent below December 2010 levels, and aid from Gulf Arab monarchies, which saw their loans as an investment against the return of political Islam, has dwindled amid the drop in oil prices.