Egyptian loans raise fears of impact on economy

Less than two weeks after obtaining a RFI loan, the Ministry of Finance announced May 22 putting up $5 billion worth of Egyptian international bonds for sale in three different tranches.

The ministry’s statement read, “The Ministry of Finance was able to successfully implement the largest international issuance of international bonds carried out by the Arab Republic of Egypt at a value of $5 billion in three tranches of four, 12 and 30 years, and with export values of $1.25 billion, $1.75 billion and $2 billion, respectively, at very good rates of return in light of the recent volatility in global financial markets and the high level of risk and uncertainty on the investors’ part.”

The IG Academy defines government bonds as “a type of debt-based investment, where you loan money to a government in return for an agreed rate of interest. Governments use them to raise funds that can be spent on new projects or infrastructure, and investors can use them to get a set return paid at regular intervals.”

On June 26, after two weeks of negotiations with the IMF, the Egyptians were taken aback by the IMF agreeing to a 12-month $5.2 billion financing package to help the country alleviate the economic impact of the coronavirus pandemic.

Mona Badir, a macroeconomic analyst at Prime Investment Bank, welcomed the IMF’s approval of any loan requests by Egypt to resolve its crises.

“Getting approval for loans or selling bonds shows that the large international financial institutions have confidence in the Egyptian government and the Egyptian economy, and are proof that the Egyptian state is currently taking the right economic steps,” she told Al-Monitor over the phone.

Badir pointed to what she called “other benefits of obtaining loans, which are filling the local financial budget deficit or opening new economic activities or investment opportunities in economic projects that benefit the country. Meanwhile, the most recent IMF loan serves to directly help contain COVID-19’s impacts on the economy.”

Abdel Hafez al-Sawy, an economic analyst who has been in Turkey since the ousting of late President Mohammed Morsi in 2013, denounced the Egyptian government’s expansion in borrowing from abroad and selling bonds in global markets.

“The Egyptian government is moving toward drowning citizens in foreign debts, thus increasing taxes and raising prices of goods and services locally, which may constitute additional burdens on Egyptians,” he told Al-Monitor via Wire.

Sawy called on the need to “find alternative solutions to help the Egyptian economy other than loans or selling international bonds, especially since it may seem like an easy way out now — but its dangerous impacts will come creeping up in the future.” He stressed the importance of “involving the people in the decision by including the parliament in any economic agreement, especially when it comes to loans.”

With the most recent $5.2 billion loan from the IMF, in addition to the $2.7 billion loan that preceded it, the IMF would thus be financing the Egyptian government with about $20 billion within three years, not to mention the $12 billion loan that Egypt got from the IMF to fund its projects in 2016.