Egypt Plans Stamp Duty on Stocks Low Enough to Retain Demand

  • Finance Minister El-Garhy says level won’t dissuade investors
  • Bond sale shows strong overseas interest in Egypt: minister

Why Egypt Is Planning a Stamp Duty on Stocks

Egypt’s planned stamp duty will be small enough to ensure demand for the country’s equities remains strong, Finance Minister Amr El-Garhy said, adding that the government is committed to a three-year delay on a capital gains tax.

The share levy will not be “of any magnitude that will hinder investors from coming,” El-Garhy said in an interview with Bloomberg Television’s Mark Barton and Manus Cranny in London on Wednesday. “We’ve seen a very strong rally in the past 2 1/2 months and we expect this to continue as we go on with the economic program.”

Egypt is trying to attract investors to its capital and debt markets to help revive an economy hit by years turmoil since the ouster of former President Hosni Mubarak. It abandoned currency controls in November and cut subsidies as part of successful efforts to secure a $12 billion loan from the International Monetary Fund, the lender’s largest in the region. Stocks have surged and Egypt raised $4 billion in its first international bond sale since 2015.

The bond sale this week showed borrowing costs have increased for Africa’s third-biggest economy. Egypt issued 10-year notes at 7.5 percent, El-Garhy said. That compares with a coupon of 5.875 percent for similar-maturity bonds in 2015. The government also sold five-year notes at a yield of 6.125 percent and 30-year securities at 8.5 percent, the minister said.

The response from investors puts Egypt in a “sweet spot,” El-Garhy said, adding that the issuance was covered “multiple times.” “We are planning to be a frequent issuer in the market depending on market conditions and depending on our needs,” he said.

Swaps, Bonds

The government is planning another sale by the end of the year or the beginning of 2018, and is also considering bonds denominated in Japanese yen and Chinese yuan, as well as currency swaps in addition to an existing one with China, he said.

The government announced in November that it’s delaying the introduction of a capital gains tax until 2020, and El-Garhy said the decision still stands and will be sent to parliament to be finalized.

Egypt’s pound has lost about half its value against the dollar since the float, contributing to a surge in prices at the fastest pace in almost 12 years in December -- with higher fuel prices and a new value-added tax also contributing. With concerns mounting about the impact on Egyptians, President Abdel-Fattah El-Sisi told state media this month that the pound should strengthen and reach fair value in six months.

El-Garhy said social stability is important as the government considers how to reduce subsidies on fuel and electricity, and said the currency should recover as confidence builds in the government’s economic program.

“We believe it’s going to take a bit longer for the entire story to come around,” he said. “We’re very confident that we’re going to be in good shape going forward.”

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