The Egyptian government agreed to upgrade the sovereign green financing framework to a sovereign sustainable financing framework, which allows the issuance of a new type of bond known as “sustainable bonds” used to finance projects with both environmental and social objectives. The government decision coincided with statements by the Minister of Finance, Mohamed Maait, during his meeting with the Chinese ambassador in Cairo, Liao Liqiang, in which he revealed that Egypt is seeking to issue yuan-denominated bonds in the Chinese market, especially since Beijing is the second-largest bond market in the world.
This is the latest endeavour of the regime of President Abdel Fattah El-Sisi to expand its options for borrowing from abroad to solve its crisis represented by the shortage of foreign exchange and the high costs of traditional borrowing methods, which in regular times could have been considered a commendable matter, but in light of the significant rise in foreign debt and its cause. This encourages the government to borrow more in an economic crisis, deepening the situation even more.
New borrowing instruments
Sustainable bonds are one of the fixed income debt instruments issued by companies or governments to finance projects of a unique nature, such as the green bonds, which the Egyptian government had given for the first time in the Middle East at the end of September 2020 at a value of 700 million dollars, targeting Financing green and environmentally friendly government projects. But sustainable bonds differ from green bonds because they blend project financing with environmental and social objectives.
Last year, the government announced that it was considering issuing sustainability bonds in coordination with the United Nations and investment banks, given the absence of Egyptian experience in giving this type of bond. And at the beginning of this year, Minister of International Cooperation, Rania Al-Mashat, said that the government is looking into the possibility of projects of the “Decent Life” initiative, which aims to develop rural villages through the issuance of sustainable development bonds.
The efforts of the Sisi regime to issue bonds denominated in Chinese yuan, which are also known as “panda bonds”, are part of its announced plan to go to Asian markets to issue bonds denominated in foreign currencies. This strategy began to be implemented last March when the government launched bonds in the Japanese markets. An international currency denominated in yen, known as “samurai bonds”, was worth about $500 million in Egypt and the Middle East for the first time.
Massive jump in debt under Sisi
The talk about the new borrowing tools comes one month after the International Financial Institution Standard & Poor’s expected that Egypt would become the largest issuer of sovereign debt among emerging markets in Europe, the Middle East and Africa, with issuances amounting to $ 73 billion (in local and foreign currencies) during the current year 2022, exceeding What I borrowed last year via bonds was about $10 billion. According to the institution’s analysts, Egypt is among the countries with the largest share of debts that must be renewed this year, noting that short-term debts amount to 26% of the total debt stocks in Egypt. The problem is that these debts are not aimed at establishing productive projects that will extricate the country from the vicious circle of debt in which it revolves. Instead, they aim to pay off previous debts through bonds issued to pay the value of old bonds.
The Egyptian public debt has witnessed a significant increase in recent years, as the public debt (internal and external) amounted to 5.66 trillion Egyptian pounds during the fiscal year 2020/2021, which was equivalent at the time to 362 billion dollars, and represented 90.6 per cent of the GDP of 6.4 trillion pounds. The biggest fear among experts is the increase in the size of the external debt, especially in light of the limited foreign exchange resources for Egypt, as the external debt jumped a giant leap during the era of President Sisi, rising from 46 billion dollars in June 2014 to 145.5 billion dollars at the end of 2021, an increase 316%! The external debt ratio to GDP for the fiscal year 2020/2021 is about 41%, compared to only 15% in 2010.