Debt casts shadow over Egypt’s recovery

After Egypt’s new finance minister took office last month, one of his first acts was to downgrade the government’s assessment of its finances. Hany Kadry Dimian said this year’s budget gap would be about a third bigger than his predecessor had estimated. He was acknowledging what may become the biggest threat to Egypt’s economic recovery after years of political turmoil: a rising public debt burden.

Since President Mohammad Morsi was ousted last July, billions of dollars in aid from allied governments in the Gulf have eased most of Egypt’s pressing economic problems. Its currency has stabilized, fuel shortages are less severe and the government has resumed spending on economic development projects.

Investors are celebrating; stocks have rocketed to levels last seen before the 2011 revolution while the yield on Egypt’s $1 billion sovereign bond due in 2020 hit 5.33 percent this week, its lowest level since December 2012 and down a whopping 5.8 percentage points since mid-2013.

But Egypt’s state finances are still getting worse, and a Reuters analysis suggests they will continue deteriorating into the second half of the decade, at the very least. In that time, the ratio of public debt to gross domestic product may rise above 100 percent, a level viewed as potentially dangerous by many economists.