Ris­ing global debt: all-time high of $184tn chal­lenges world, Egypt no ex­cep­tion

THE STATE OF THE WORLD’S GOV­ERN­MENT DEBT

The Daily News Egypt - - Front Page -

Global debt has been on the ris­ing tide in the re­cent year, world­wide debt reached a record high of $184tn, al­most 225% of global GDP in 2017, the In­ter­na­tional Mon­e­tary Fund has an­nounced.

The US,China,and Ja­pan are lead­ing the world’s bor­row­ers list, ac­count­ing for more than half the global debt, sig­nif­i­cantly greater than their share of global out­put.

In Egypt’s case, how­ever, over the next three years, the gov­ern­ment’s net debt is pro­jected to de­cline from 100.3% of the GDP in fis­cal year (FY) 2017/18 to 89.6% of the GDP in FY 2020/21, ac­cord­ing to Pharos. Pharos be­lieve the de­cline in debt will rely on three main fac­tors:

First is the con­tin­u­ing fis­cal consolidation, as the pri­mary bal­ance turns pos­i­tive, the ac­cu­mu­la­tion of debt would de­cel­er­ate, lead­ing the debt ra­tio (as % of the GDP) to de­crease.

Se­cond, is the shift to­ward ex­ter­nal debt,as Egypt’s Min­istry of Fi­nance has been shift­ing to­wards the less costly source of fi­nanc­ing through in­creas­ing the por­tion of ex­ter­nal debt, while de­creas­ing the do­mes­tic debt con­tri­bu­tion. Con­se­quently, go­ing for­ward, Pharos ex­pect the ex­ter­nal debt to in­crease from 37% of the GDP in FY 2017/18 to 38.1% of the GDP in FY 2020/21, in light of the lat­est steps of the eco­nomic re­form pro­gramme.

Fi­nally, favourable debt dy­nam­ics will ease the pres­sure—apart from the fis­cal pol­icy stance,and the over­all sup­port­ive macroe­co­nomic en­vi­ron­ment in Egypt over the next three years— and would also help re­duce the debt ra­tio. Pharos es­ti­mate the real ef­fec­tive in­ter­est rate on lo­cal cur­rency debt to re­main below the real GDP growth rate over the fore­cast hori­zon.

Ac­cord­ingly, the nom­i­nal GDP growth rate would ex­ceed the net gov­ern­ment debt growth rate, lead­ing the debt ra­tio to go down­wards.

In De­cem­ber, Fitch, the global credit rat­ing agency, is­sued a re­port cit­ing their fore­cast that Egypt’s fis­cal debt is nar­row­ing to 6.4% of the GDP by FY 2019/20, down from 9.4% in FY 2017/18 sup­ported by ro­bust eco­nomic growth and fis­cal re­forms.

Fitch be­lieve that the biggest risk to Egypt’s fis­cal consolidation is the coun­try’s debt com­po­si­tion and short debt ma­tu­rity sched­ule, as the coun­try’s debt ma­tu­rity sched­ule is rel­a­tively short, height­en­ing rollover risks.

Ad­di­tion­ally, Fitch in­di­cates that 50.0% of the debt is set to ma­ture by end-2020, and in an en­vi­ron­ment of tight­en­ing global fi­nanc­ing con­di­tions, this could leave the coun­try more ex­posed to a jump in bor­row­ing costs.

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