Outstanding Debt
  • Total domestic debt (both tradable and non-tradable) reached EGP 2.09 trillion at the end of June 2015, or 86 percent of GDP. Of this, domestic tradable debt was EGP 1.13 trillion, equivalent to 54 percent of the total domestic debt (please refer to Table 1 below).
  • Domestic tradable debt is comprised of Treasury bonds and Treasury bills, both denominated in EGP. The former constituted 54 percent of domestic tradable debt (28.6 percent of the total domestic debt), while the latter made up 46 percent (25.4 percent).Treasury bonds have been gaining share in recent years, leading to a gradual improvement in the Average Time to Maturity (ATM) of the overall domestic tradable debt portfolio. 
  • External debt consists of three sub-categories: medium and long term public and publicly guaranteed debt; medium and long term private sector non-guaranteed debt; and short term debt.
  • Gross External debt recorded US$ 48.1 billion at the end of June 2015, compared to US$ 46.1 billion at the end of June 2014. External debt recorded 15 percent of GDP as end of June 2015, a relatively low figure when compared to the average of peer countries (for example, the Middle East and North Africa countries recorded an average debt amounting to 27 percent of GDP during the year 2013). 
  • Of the total gross external debt, government external debt was US$ 25.7 billion (equivalent to 53.5 percent), having declined by 11.4 percent from US$ 29 billion (63.1 percent of total external debt) at the end of June 2014.
  • The government’s external tradable debt reached US$ 17.4 billion at the end of June 2015. 
  • The bulk of the government’s outstanding tradable debt is domestic debt. Debt denominated in domestic currency represents 89 percent of the total tradable debt, with the remaining 11 percent consisting of external debt and debt denominated in foreign currency (including US$ TBills, US$ T-Bonds and Euro T-Bills issued in the domestic market). 
  • Average Time to Maturity (ATM) reached 2.2 years for domestic tradable debt by the end of June 2015. · The percentage of domestic debt with maturity less than one year reached 55% of total domestic tradable debt; with respect to external debt, 56% of total external tradable debt at the end of June 2015. 

​​ Outstanding Debt by Instrument (Left) and by Type (Right) as end of June 2015 
Source: Ministry of Finance 
Existing Debt Management Strategy
  • The mission of the Debt Management Unit (DMU) is to carry out the government’s debt management strategy and procure treasury funding requirements at the lowest long-term cost relative to the general level of interest rates, consistent with the government’s fiscal and monetary policy framework. The Ministry of Finance follows a market-oriented funding strategy based on projected requirements, determining frequency, volume, timing and maturities
  • Supporting market development is also an important objective for debt management strategy, which the MoF is addressing by:
1. Focusing on a limited number of benchmark maturities, namely, 3, 5, 7 and 10 years;
2. Increasing the number of re-openings for each security in order to raise the target amount outstanding to approximately EGP 12-15 billion per T-bond life time; this strategy increases the liquidity in the supply side, which will in turn enhance activity in the secondary market;
3. Organizing the issuance schedule to avoid the crowding out of securities through alternating the issuance week for 3 and 7 year T-bonds along with 5 and 10 year Tbonds. A similar approach is followed for T-bills by issuing 3 and 9 month bills on one day, while 6 and 12 month bills are issued on a different day.
  •  During FY 2014/15, the MoF (through the operations of the DMU) issued government securities amounting to EGP1,097 billion (846 EGP billion T-Bills, 239 EGP billion T-Bonds, and 11 EGP billion representing the equivalent of the Eurobond issued in June 2015). These issuances were equivalent to86percent out of LE 1,278 billion in total financing needs. 
  • One of the government’s key objectives is to lengthen the maturity structure of the domestic tradable debt, as well as to consolidate a domestic yield curve in order to reduce refinancing risk. The MoF has succeeded in meeting this objective by moving gradually to a larger volume of issuances and re-openings of longer-dated treasury bonds.
  •  The issuance strategy implemented by the DMU has contributed to lengthening the average life of the domestic tradable debt (ATM) to reach 2.2 years at the end of June 2015, compared to only 0.34 year at the end of June 2004. In nominal terms, the outstanding stock of government medium and long term bonds increased to EGP 597 billion at the end of June 2015, up markedly from only EGP 13 billion in June 2004.
  •  While efforts to support the development of the government securities market have led to an increase in secondary market transactions, more effort must be exerted to activate trade in the secondary market for T-Bonds. Implementing this strategy will help in decreasing the55 percent of the outstanding domestic debt under 1 year of maturity.
  • Although there is a refinancing risk, it will be kept at close check. The DMU’s operations have resulted in gradually lengthening the ATM of the total tradable debt outstanding (based on currency rather than residency for the external debt portion) to 2.2 years, as noted above. The ATM of the foreign currency denominated debt is slightly higher at 2.5 years due to the longer term of external issuances. The redemption profile is relatively smooth after 2017, with the only peak in FY 2015-2016related to the amount of debt maturing within 1 year. 
  • While 100 percent of Egypt’s tradable debt (both domestic and external) carries a fixed interest rate, interest rate risk is nonetheless relatively substantial due to the short-term nature of the debt portfolio. The share of debt carrying an interest rate to be re-fixed within 1 year is 55percent for domestic debt and 56 percent for external debt. The large percentage of external debt maturing within 1 year is due to the issuance of USD and EUR denominated T-bills (1 year maturity) that were first issued in 2012. Although these foreign currency denominated bills are held by domestic banks, they represent an exposure to foreign exchange risk and are thus considered part of the external debt. 
Source: Ministry of Finance 
Risks Of An Ever-Increasing Debt
Infusion of debt stimulus to spiral upward
  • Despite the government’s hopes to shrink the internal and external debts, announcements of new loans and investment pledges from Arab and international institutions and governments have not stopped.Financial assistance from Arab countries, following the ouster of former Islamist president Mohamed Morsi, has pushed the external debt level to more than $46bn through the end of June 2014, prompting President Abdel Fattah Al-Sisi to place decreasing debt among his goals during his term.
  • On his first day as a president, Al-Sisi called for a conference that would “economically assist Egypt”, asking foreign countries to invest in government-proposed projects.The conference, which was later named the Egypt Economic Development Conference (EEDC), occurred in March 2015 and witnessed the signing of loan agreements and investment opportunities worth $38.2bn, according to official figures. While the EEDC increased the debt burden, the conference was seen as a success by the government as it boosted foreign reserves to approximately $20.5bn, reinforced by deposits from Saudi Arabia, Kuwait, and the UAE, worth $6bn in total.
  • Additional debt burden to come this year: New loans from the World Bank, approved in December, are expected to reach the CBE soon, according to the central bank governor, who said earlier this month that the first segment of the World Bank’s loan is valued at $1bn. Over December 2015, Egypt acquired the approval of the World Bank and the AfDB on two loans, valued at $4.5bn – with $3bn to come from the World Bank and $1.5bn to from AfDB – and are expected to be dispersed over three years.
  • The loan aims to support foreign reserves at the CBE. “These funds come in the form of soft loans at an interest rate of 1.68% with a grace period of five years,” said Minister of International Cooperation Sahar Nasr, who was a former economist at the World Bank. “The repayment period is 35 years.” The move came after the World Bank’s approval to raise Egypt’s portfolio from $5.5bn to $6bn in November, increasing the bank’s commitment to support a number of projects in the country.
  • Additionally, spokesperson of the cabinet said on 10 January that Egypt will receive a grant from China over the next few days, amounting to approximately CNY 200m ($31.5m). The grant will be used to establish a centre to assemble and examine satellites, study, and implement a project to combat desertification. Other projects are also being studied to be included in the grant. The announcement came while stating the Kuwait Fund for Arab Economic Development (KFAED) agreed to loan Egypt approximately KWD 30m ($98.7m) to fund the electricity linkage project between Egypt and Saudi Arabia. KFAED was said to transfer the loan in the next few days and all the arrangements between the Egyptian and Kuwaiti parties have been finalised, according to sources.
  • Egypt also still needs funds for financing its development projects. Nasr told the World Bank in an earlier meeting that the ministry aims to fund national projects, with the 1.5m acres project, which aims to reclaim 1.5m acres in Egypt’s Western Desert, covering land lots in the Minya and Qena governorates. The project will also include agricultural urban communities as well as agricultural industrialisation zones.

Risks of Rising Debt 
  • Crowding-out bank loans to the private sector, preferring safe lending to the government at high interest rates which leads to a decline in the loans to deposits ratio in the banking sector. Depriving corporates and SMEs from potential funds could negatively impact economic activity and GDP growth rate, leading to a further rise in the debt to GDP ratio accordingly.
  • The alternative opportunity cost of reallocating such resources (Debt service cost) to social expenditures on education, health and welfare programs that can target low-income groups. In addition, it decreases public investments in infrastructure projects that are essential for attracting foreign and domestic investments.
  • Increasing the cost of borrowing and limiting access to more funds because of the decreasing confidence in the Egyptian economy. 
  • It’s unlikely for Egypt to fail in meeting its external debt obligations because of the favorable structure of Egypt’s external debt (95% of it is represented by medium and long term debt) which mitigates the burden of periodical payments; however, escalating debts increase the chances of such risk that may lead to severe negotiations with creditors to restructure owed debts and seeking help from neighboring countries.

Sources: 
Ministry of Finance: Medium-Term Debt Management Strategy (MTDS)
AlexBank: Reasons and Risks of Egypt's Public Debt 
Daily News Egypt: Egypt’s debt burden to see no relief as infusion of debt stimulus to spiral upward: http://www.dailynewsegypt.com/2016/01/14/egypts-debt-burden-to-see-no-relief-as-infusion-of-debt-stimulus-to-spiral-upward/
External Debt in Egypt increased to 53444.90 USD Million in the first quarter of 2016 from 47792.30 USD Million in the fourth quarter of 2015. External Debt in Egypt averaged 32560.36 USD Million from 1997 until 2016, reaching an all time high of 53444.90 USD Million in the first quarter of 2016 and a record low of 26132.50 USD Million in the first quarter of 2001. External Debt in Egypt is reported by the Central Bank of Egypt.