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Foreign exchange crisis drives up Egypt’s external debt

Egypt’s banks have turned to borrowing foreign currency to deal with the pervasive shortage in dollar liquidity, according to the Central Bank of Egypt (CBE), causing a hike in the country’s short-term external debt.

The CBE’s monthly bulletin, published on Wednesday, stated that Egypt’s short-term external debt reached US$7.017 billion in June 2016, up from $2.575 billion in the same period the previous year. This encompasses any debt owed to foreign creditors which must be repaid within one year.

An analyst from a Cairo-based investment bank, who wished to remain anonymous, told Mada Masr that the rise in short-term foreign debt is a result of “the shortage in dollar liquidity, and also the shortage in the state’s foreign currency earnings.”

They added that in the past foreign currency revenues made their own way into the banking system, however this is no longer the case.

Egypt has struggled with a prolonged shortage in foreign currency since the 2011 uprising, after which the country saw a decrease in both tourism and foreign investment, two of the main sources of hard currency.

Short-term currency and deposits at the CBE increased to $3.2 billion in June of 2016, up from zero in the same period a year earlier, according to the bulletin. Additionally, short-term liabilities at banks reached $1.9 billion in June 2016, up from $1.45 billion in the same period in 2015, further contributing to the short-term external debt.

Total external debt increased from $48.063 billion in June 2015 to $55.674 billion in June of this year.

The bulletin also highlighted that the percentage of short-term external debt from net international reserves surged to 40 percent from 12.8 percent in the same period. According to the analyst, “the rise in this number means higher risk because your coverage of debt has decreased.”

They told Mada Masr that the rise in external debt is caused by two factors, namely the increase in short-term debt and because reserves were low between June 2015 and June 2016.

Egypt’s net international reserves were $17.546 billion in June 2016, although this rose to $19.591 billion in September.

However, the Government’s external debt share in Egypt’s total external debt dropped to 43.8 percent, down from 53.5 percent over the same time period.

AD