International investors hedge against Egypt’s debt amid rising risks

“The increase in insurance against Egypt’s debt has been rising recently, especially in September, in tandem with downgrading Egypt’s credit ratings by key international institutions,” banking expert Mohamed El-Beih told Ahram Online.

Earlier this week, American investment bank Morgan Stanley downgraded Egypt’s sovereign credit rating to “dislike stance” from “neutral”, citing a delay in the reforms required by the International Monetary Fund (IMF).

In September, Capital Intelligence (CI) Ratings lowered Egypt’s long-term foreign and local currency ratings to B from B+, revising the outlook to stable from negative.

With a total external debt of $165.3 billion, Egypt is required to pay $71.6 billion in debt service in the coming three years, including $29.23 billion in 2024.

“Egypt has some commitments to the IMF under the $3 billion loan agreement signed in December. The country is progressing well in respect of privatization, but the flexibility of exchange rate, another demand by the fund, is not keeping the same pace,” El-Beih noted.

Egypt is not expected to take a decision regarding devaluation until January, which could be a good opportunity for the Central Bank of Egypt to increase its foreign currency reserves, he added.

“A devaluation without enough reserves to control it will increase the financial gap and – in turn – aggravate risk on Egypt’s default,” El-Beih explained.

Egypt’s foreign asset deficit amounted to nearly $25.92 billion in August. The country seeks to collect $191 billion in annual US dollar revenues by 2026.