Ask bond market: Egypt is ready for an upgrade
cairo — With its finances in tatters, a credit upgrade was out of the question for Egypt before it secured an IMF loan agreement. Fast-forward six months, and it’s already won promotion in the bond market.
Egypt’s dollar bonds have sprung back this year, driving its borrowing costs to the lowest level since 2015. That has lifted the market perception of Egyptian risk above that of some ratings assessors. The nation’s debt has had an implied rating of B2 or better for almost three months, according to Moody’s Analytics.
Foreigners began buying Egyptian assets again after the International Monetary Fund last year gave its support to President Abdel Fattah El Sisi’s economic policies. Not only did the country abandon its currency peg and raise interest rates by 300 basis points in November, it also increased fuel prices to help secure a $12 billion, threeyear IMF loan programme.
The Egyptian pound sunk 54 per cent after it began freely floating, pushing inflation to 30 per cent, but it has stabilised at about 18 per dollar since mid-March.
“Egypt has traded very well due to the positive reform momentum, IMF assistance and general bullish view toward emerging markets,” said Anthony Simond, who holds Egyptian bonds among the $11 billion of debt he helps manage at Aberdeen Asset Management in London. “If the government can keep its focus and not water down its plans, then an upgrade should be possible within six to 12 months.”
The yield on Egyptian Eurobonds due in 2025 has tumbled 133 basis points this year to six per cent on Wednesday, the lowest level in almost two years. While it has since risen 10 basis points, the rate’s decline this year is almost four times the drop in the average yield of emerging-market sovereign bonds, according to the Bloomberg USD Emerging Market Sovereign Bond Index.