CAIRO (Jan 13): Egypt plans to issue between US$3 billion and US$7 billion worth of international bonds in the first quarter of the year, Finance Minister Mohamed Maait said Sunday, as an outflow of foreign capital in local debt markets could test its ability to meet budget deficit reduction targets.

The cabinet has given “us the flexibility to issue what we need within this range” and also flexibility regarding the currencies, Maait said in an interview on the sidelines of an investor conference in Cairo. Maait said the government plans to sell the bonds in a range of currencies including the US dollar, euro, yen and the yuan. No decision had yet been taken on exactly how much or what denominations the bonds would be in, he said.

Separately, Maait told Bloomberg the government expects “to announce progress” with the International Monetary Fund within two weeks with regard to the release of the fifth installment of its US$12 billion loan to Egypt. He also told reporters that talks with the fund are “moving in the right direction.”

That payment had been expected in December, but a dispute with the Washington-based fund over an announcement about linking local fuel prices to their international counterparts had pushed back the disbursal. With the payment delayed, Egypt’s net international reserves retreated in December for the first time since the November 2016 decision to float the currency in the first salvo of a sweeping economic programme.

The government plans to lift fuel subsidies by the end of June. But in a nod to the dispute with the IMF, it announced on Jan 7 that it would index 95 octane gasoline, from which subsidies had already been lifted, to Brent crude.

The IMF-backed programme calls for cost cutting measures such as the lifting of energy subsidies, as well as trimming the wage bill -- politically sensitive steps in a nation of almost 100 million where the devaluation of the pound halved its value against the US dollar overnight and sent inflation soaring to over 30%.

Egypt Expects IMF Loan Installment in January as Talks Delayed

Since then, the government has made significant strides in slowing inflation, but it has also recently been dogged by an outflow of foreign investments in local debt -- an exodus that has yet to be replaced by foreign direct investment. Net outflows in portfolio investments were US$3.2 billion between July and September of last year compared to a net inflow of US$7.5 billion for the same period a year earlier, according to the central bank.

The draft fiscal budget for 2019-20, which begins in July, sees the deficit falling to 7% and the debt-to-GDP ratio retreating to 79.4% from around 98% in the current fiscal year.

Maait said that the amount of bonds to be issued from each currency “depends on the needs of the market.”