S&P: Egypt’s soaring rates allure inflows but pose risks

S&P Global Ratings warned on Sunday that Egypt must find a way to pay less on its debt if it is to weather a potential surge in global interest rates.
Egypt has the highest differential between its key policy rates and inflation among more than 50 economies worldwide tracked by Bloomberg, making its bonds and bills a favourite among international investors hungry for yield.
Foreign holdings in the North African nation’s notes recorded more than $28 billion, a key buffer as tourism awaits a full recovery from the pandemic.
But S&PGR credit analyst Zahabia Gupta said in the report that the world’s highest real interest rates also come with an elevated fiscal cost and leave Egypt vulnerable to significant outflows if rates in the developed world increase. This will be particularly if the U.S. Federal Reserve tapers its quantitative easing policies faster than expected, Gupta added.
“Egypt’s interest-to-revenues ratio and its interest payments as a percentage of GDP are among the highest of all rated sovereigns,” according to Gupta. “A potential path for Egypt to lower its interest bill is to increase investor confidence in its economic model such that investors cut the risk premium they require on Egypt’s government debt.”