If you are looking for a profitable investment opportunity in emerging markets, you might want to consider Egypt’s sovereign bonds.
They have given investors a whopping 24% return this year, according to a Bloomberg index, ranking second only to Argentina. This impressive performance is driven by the expectation that Egypt will secure a deal with the IMF and attract more foreign investments.
Egypt is one of the largest borrowers from the IMF in the world, and it hopes to receive about $1.2 billion more from the IMF, as Prime Minister Mostafa Madbouly announced on Wednesday.
He also said that the government will cap its total public investments at 1 trillion pounds ($20 billion) in the fiscal year 2024-2025, which covers all state entities.
The IMF’s mission chief to Egypt, Ivanna Vladkova Hollar, said in another briefing that Egypt can also expect more support from “key partners”, such as the World Bank, in the near future.
Meanwhile, the Egyptian pound has weakened below 50 per dollar, after trading at around 30.9 for a year. The central bank surprised the market by hiking its main interest rate to a record 27.25% in an emergency meeting.
Also Read: British Sets Aside $1.5 Billion for Energy in Egypt
Egypt’s dollar-denominated bonds also rose, with longer maturities gaining the most. The 2050 bond increased by up to 3.5 cents on the dollar before trimming gains, based on Bloomberg’s indicative pricing data.
The IMF also said that it had reached a staff-level agreement with Egypt on two overdue reviews of an earlier $3 billion loan that was obtained more than a year ago. The disbursement of that loan, which was supplemented by the new program, was delayed as the fund waited for Egypt to implement reforms, such as allowing more currency flexibility.
“Egypt’s international and regional partners will play a critical role in facilitating the implementation of the authorities’ policies and reforms,” the IMF said.
Central Bank of Egypt Governor Hassan Abdalla said Wednesday night in Cairo that “We are on the right track for the country to be economically stable and strong,”adding that the bank didn’t intervene in the foreign exchange market earlier in the day as the pound tanked.
The currency flotation may stoke inflation that’s already running near 30% and hurt Egyptians in the short term.
Bloomberg reports that authorities are banking on the reforms attracting foreign investors back to the country of 105 million people and ending its worst economic crisis in decades.
“This basically means that Egypt is in a better position to meet all its short-term debt obligations and in fact also access new debt including eurobonds,” said Bilal Bassiouni, head of Middle East and North Africa forecasting for consulting firm Pangea-Risk.
“We believe Egypt will be one of the new clients for eurobonds in 2024.”
