Egypt’s economy exceeds expectation despite pandemic

Students are being transported by their family members on motorcycles during the first day of school, following months of closure due to the coronavirus disease (COVID-19) outbreak in the Giza suburb of Awsim, Egypt October 18, 2020. (Reuters)
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Updated 19 October 2020

Egypt’s economy exceeds expectation despite pandemic

  • The IMF also expects a decline in the overall deficit of GDP to 5.2 percent during 2022-23

CAIRO: Egyptian Finance Minister Mohamed Maait said on Sunday that the financial performance of the Egyptian economy during the coronavirus disease (COVID-19) pandemic exceeded expectations, according to the International Monetary Fund’s (IMF) testimony in its Global Economic Outlook report for October 2020.

In an official statement, he said the economic reforms adopted by President Abdel Fattah El-Sisi had strengthened the Egyptian economy and made it resilient in the face of internal and external challenges.

He said much of that was due to the flexible handling of the pandemic, as the state adopted a proactive policy of allocating 2 percent of its gross domestic product (GDP) to support the most vulnerable economic sectors and groups. Steps were taken in a way that contributed to mitigating the shock and supported the national economy, he said.

The minister said the IMF expected the Egyptian economy to rapidly recover in the medium term and for the country to achieve growth rates higher than those prior to the pandemic.

The IMF also expects a decline in the overall deficit of GDP to 5.2 percent during 2022-23 and 3.8 percent by the 2024-25 fiscal year, reflecting the ability of Egyptian financial policies to deal positively and effectively with local and international variables.

“According to the estimates of the IMF, the state budget, despite the pandemic, will achieve a primary surplus of 0.4 percent of GDP during the current fiscal year, which will rise to 2.1 percent during 2022-23, and the trend will continue at a sustainable rate up to 2 percent on average until 2025,” Maait said.

The finance minister said the IMF expected Egypt to increase total state revenues during the current fiscal by 20 percent, compared to 19.2 percent in the previous year, continuing until the fiscal year 2024-25.

Public expenditures are also expected to decrease to 25.4 percent in the current fiscal year, compared to 28.4 percent last year.

Despite the IMF report indicating a state of ambiguity about the outlook for the global economy, the Egyptian economy’s outlook remained optimistic, Maait said, as the IMF has raised its estimate of the growth rate to 3.5 percent instead of 2 percent during the last fiscal year.

He pointed out that the state’s general budget recorded a slight initial surplus of 100 million Egyptian pounds ($6.39 million) during the first quarter of the current fiscal year, despite the repercussions of the pandemic, meeting the needs of the health sector, all budgetary bodies, greatly increasing government investments and paying pension fund dues.

He said the annual growth rate of revenues rose to 18.4 percent during July and September 2020, despite the continuing negative effects of the pandemic on economic activity, while the annual growth rate of expenditures reached 11 percent due to the increase in government investment allocations, the provision of support allocations and social protection programs, and increased spending on health and education.

Oman’s bond market return a key test for reform path

Updated 21 October 2020

Oman’s bond market return a key test for reform path

  • After becoming ruler in January, Sultan Haitham made shaking up and modernising state finances a top priority

DUBAI: Oman’s return to the international bond market this week will be a test of its ability to convince investors that long-awaited fiscal reforms have started to put it on a sustainable financial footing.

Oman, rated below investment grade by all the major credit agencies, announced on Monday plans to issue bonds with maturities of three, seven and 12 years, in what would be its first global debt sale this year.

Sultan Haitham, who became Oman’s ruler in January, has made shaking up state finances one of his priorities.

But investors would like to see more concrete steps being taken and, after a further sovereign downgrade last week, may require the new bonds to offer a significant premium over the country’s existing debt.

“The new sultan has done some good things — rationalizing the number of ministries, the implementation of VAT, plans to generate additional tax revenues, and they still have sovereign assets,” said Raza Agha, head of emerging markets credit strategy at Legal & General Investment Management.

“There is positive momentum but it will take time for that credibility to build.”

According to a bond prospectus, Oman has begun talks with some Gulf countries for financial support.

“I don’t think this will actually be taken into consideration by investors unless there is a tangible announcement from Gulf countries with a tangible support package,” said Zeina Rizk, executive fixed income director at Arqaam Capital.

Oman will likely price the new three-year bonds in the high 4 percent area, the seven-year tranche in the high 6 percent and the 12-year in the mid-to-high 7 percent area, implying a premium of at least 50 basis points (bps) over its existing curve, she said.

Two other investors, who did not wish to be named, said the paper could carry a 25 bps premium over existing secondary trading levels.

Sources have previously told Reuters Oman would target over $3 billion with the new deal.

“If they take $3 to 3.5 billion, you will have a market indigestion for Oman, and I’m sure people will ask to be compensated for this risk,” Rizk said.