Governor of the Central Bank of Egypt (CBE) Tarek Amer, said Egypt’s short-term debt is very low.
In his speech to the International Finance Institute in Washington, Amer said long-term debt constituted 87% of Egypt’s external debt, pointing out that 13% of short-term debts are deposits from Arab countries, which are renewed every four years.
Last week, the World Bank disclosed that Egypt’s external debt, before adding interest rates, was on the rise to $108.7bn at the end of June, up from $106.2bn at the end of March 2019.
According to the World Bank, government debt has risen to $57.2bn, up from $53.4bn, while debts of the CBE fell to $27.9bn down from $28.5bn, and loans to banks also fell from $10.1bn to $9.5bn. External debt service, which includes debt assets and interest, has declined to $134.87bn against $136.15bn in March.
The data revealed that the volume of short-term debt maturing within one year in accordance with the original maturity fell to $11.05bn down from $12.4bn in March.
The cost of debt servicing fell in one year, starting from June 2019 to June 2020, which includes medium-term debt assets whose repayment is due during that period, as well as short-term debt agreed to be repaid within one year or less and their interest to $26.97bn from $30.43bn.
The data showed that banks over the next 12 months have to repay nearly $5.2bn, the government about $4.5bn, CBE about $11.8bn, and other sectors around $5.8bn.
According to Amer, most long-term debts are loans ranging in duration from 10 to 59 years, adding that Egypt received loans from Asian countries with a repayment period of 59 years to finance the establishment of the metro’s third line, in addition to projects to expand three oil refineries as well as desalination plants.
Amer stressed that the Egyptian banking system is highly liquid, with a loan-to-deposit ratio of about 44%, in addition to strong capital ratios and capital rules for the banking system.
He added that Egypt was able to reduce non-performing loans to less than 5% and that CBE is leading a major effort to digitise financial services. He also mentioned that Egypt has a large financial inclusion programme.
He explained that the CBE has created a base for a number of economic forces to work well, expressing his happiness to see a number of important sectors achieve their objectives, saying, “the results may be unclear in the balance of payments now, but it will come.”
“Certainly our currency’s competitiveness has helped us develop our economy, but now we are working in consultation with the government on stricter structural reforms,” Amer said. “Our way of allocating land has been changed so that the industry can go further, ” he added.
Amer pointed out that we now have a new banking law approved by the Council of Ministers two weeks ago, explaining that this law is derived from international standards, as it has been working with international legal companies as well as the WB, the IMF, and local legal experts to draft this Law.
Amer stressed that the capital market has now become a good opportunity for investors, since Egypt has become an important player in it.
When asked about inflation expectations for the coming year and how monetary policy will be handled in this regard, Amer said, “We set a goal in 2018 to bring down inflation to 13% in the last quarter then to 9% (+/- 3%) by the end of 2020.”
Concerning the high share of foreign ownership in the domestic bond market, Amer pointed out that the Ministry of Finance is working on many things related to long-term bonds. He also mentioned that the country is finding that more and more foreign investors are starting to want 5-year bonds.
He stressed that the Finance Ministry is happy with interest rate levels and will start to do a lot of long-term bond issues.
“We are trying to enrich this market with interest rate levels. There is a greater chance of converting parts of short-term treasury bills into long-term bonds, which will provide a greater opportunity for investors who want to maintain their returns,” he added.