Egypt expects to renew financing deal with global banks

Egyptian Finance Minister Amr El-Garhy said on Monday he expects a financing agreement with a consortium of global banks will be renewed for another year with the aim to boost foreign reserves while the government implements economic reforms.

“I think so. I think the central bank will renew it. It is a joint decision between the central bank and us (the finance ministry),” El-Garhy said in an interview on the sidelines of a New York investor luncheon sponsored by the American Chamber of Commerce in Egypt.

The original $2 billion repurchase agreement, signed in November 2016, had a one-year maturity. The banks provided funds against international bonds issued by the finance ministry and listed on the Irish stock exchange.

Asked if the amount of money would be increased, El-Garhy said: “It depends on the amount of the haircut, or discount. I think it will be improved. Last year it was 30 percent. I think this will improve this year and the discount could be only 25 percent, and that reflects improvement in the risk profile of Egypt.”

Egypt has tried to implement economic reforms to help revive its economy, which has been battered by political and economic upheaval since a 2011 uprising. Part of that effort included signing a $12 billion, three-year financial bailout program with the International Monetary Fund in November 2016.

The government then floated its currency, the pound, cut fuel and energy subsidies and increased taxes.

The central bank has since boosted a key interest rate by 700 basis points in a bid to ease inflation pressures. That has fueled foreign buying of government Treasury bills, which El-Garhy said remains strong.

“Foreign investors in T-bills did not go away. They are still coming,” he said.

Inflation data for September has eased from July when it reached its highest levels since 1986. Prices surged after the energy and fuel subsidies were cut.

On fuel prices El-Garhy said: “We have no scenario for another increase this year.”

If there is confirmation of stable prices and level inflation that allowed the central bank to have a clearer 12-month horizon, El-Garhy said he believed “there could be a scenario for the central bank to act” in bringing rates down.

El-Garhy reiterated plans to issue $3 billion worth of U.S. dollar-denominated Eurobonds and one billion worth of euro-denominated bonds in 2018.

“No decision yet, but most probably we start at the beginning of the year,” he said.

He also flatly stated there would be no increase in the current 14 percent value added tax.

The government’s goal is to attract more investment and create a steady 6 percent economic growth rate over the next five to seven years, starting in fiscal year 2018/19. Growth in fiscal 2016/17 was 4.2 percent.

“People have to be sure that we have a strong macro/fiscal consolidation… That would basically facilitate the decision making process for investors to come into the country,” he said, with a focus on tourism, agriculture and technology.

In the last fiscal year, $7.9 billion worth of foreign direct investment flowed into Egypt, 40 percent of which was for oil and gas, Investment Minister Sahar Nasr said in a separate interview after earlier addressing the same luncheon on Thursday.

“The British come first because they have three companies,” Nasr said, citing Centrica Plc’s (CNA.L) British Gas, BP Plc (BP.L) and Royal Dutch Shell Plc (RDSa.L).

Attracting businesses beyond the oil and gas sector remains a key government goal and a reason for the passage of a new investment law ratified by President Abdel Fattah al-Sisi in June.

Nasr highlighted incentives such as the 30 percent to 50 percent tax exemption from investment costs for seven years and one of the big reasons for a surge in business registrations.

“Just in the last three months, July, August, September, 3,700 new companies were established… this is 25 percent more than the same period last year,” she said, citing the new law. Source: Reuters