Standard Chartered Bank Warns of Egypt’s Foreign Currency Debt

Standard Chartered Bank warns that almost one-third of Egypt’s debt is in foreign currency and any additional move in the US dollar against the Egyptian pound would boost the debt-to-GDP ratio.

Dollar Value Increase Could Take Debt to GDP Ratio over 100%

The bank reported that if the value of the dollar were to reach about 38 pounds (as it circulates in a parallel market), then the debt to gross domestic product ratio would exceed 100% by June 2023. The report was given to Masravi under the title “Egypt, the clock is ticking.”

External Debt Increases

Egypt’s external debt increased by 5.2% in the last quarter of last year to reach $162.9 billion at the end of December, compared to $154.9 billion in September. This data was released by the Ministry of Planning and Economic Development.

Debt Burden Reaches 91.6% of GDP

According to the bank’s report, the debt burden reached 91.6% of GDP in June 2022 (based on data from the International Monetary Fund).

Public Agency Debt Expected to Rise

The State’s New Fiscal Year General Budget Proposal Financial Statement predicts that public agency debt will rise to approximately 96% of GDP by the end of June 2023.

Pound Sterling Drops Dramatically

Egypt’s return to a flexible exchange rate after it was suspended in 2020 and 2021 has sent the pound sterling down significantly since March last year. This has pushed the dollar up about 96% against the pound, from £15.76 on March 20, 2022, to £30.94 in bank transactions as of today, Sunday, according to central bank data.

Impact of Inflation, Weak Currency and Global Interest Rate Hikes

The combination of high inflation, weak currency, and global interest rate hikes has had a major impact on Egypt. The interest expense-to-income ratio is likely to exceed 50% in the current and next fiscal years, according to the bank’s report.

Debt Sustainability Problems on the Rise

The bank warns that despite fiscal discipline keeping the deficit under control, Egypt’s debt sustainability problems are on the rise.

Source: Masravi