Foreigners lapping up Egypt’s cheap debt

Offshore investors boosted holdings of government Treasury bills to 79b Egyptian pounds by end April

Aflood of new issuance is offsetting foreign-investor demand for Egyptian debt, keeping yields among the highest in emerging markets.

Offshore investors boosted holdings of government Treasury bills to 79 billion pounds (Dh16.16 billion; $4.4 billion) at the end of April, compared with less than 1 billion pounds before a currency devaluation in November, according to Finance Ministry data. Government borrowing is already 11 per cent higher than the target this year, and 18 per cent over budget since the beginning of March, according to data compiled by Bloomberg.

Yields on Egyptian debt are the highest among 31 nations in Bloomberg Emerging Market Local Sovereign Index even as the cheaper pound attracts muchneeded dollars from abroad. That presents a dilemma for policymakers in Africa’s third-biggest economy, which faces a widening budget deficit and growing debt pile that is costing more to service as it tries to shield tens of millions of people living in poverty from inflation that has surged to more than 30 per cent on an annual basis.

“You cannot adopt inflationary reforms such as floating the currency and cutting subsidies while consolidating your budget at the same time,” said Hany Farahat, an economist at Cairobased CI Capital Holding who expects the budget deficit to exceed 12 per cent of gross domestic product this fiscal year, compared with the government’s target of 10.7 per cent. “There must be a trade-off.”

T-bills

Egypt sold T-bills ranging in maturity from three months to one year last week at average yields of more than 19 per cent. The pound traded at 18.1413 per dollar on Thursday, 51 per cent weaker than before the devaluation on November 3.