Egypt

Overview

Policy Watch

Egypt Monetary Policy Statement

16/06/2016

The monetary policy committee decided to increase its key rate by 100 bps to 11.75%.

Egypt Monetary Policy Statement

28/04/2016

The monetary policy committtee decided to keep its key rate unchanged at 10.75%.

Egypt Monetary Policy Statement

28/01/2016

The monetary policy committee decided to keep its key rate unchanged at 9.75%.

Egypt Monetary Policy

23/04/2015

The monetary policy committee decided to keep it's key rate unchanged to 9.25%.

Debt vs GDP / Bonds vs bills

All Data - Egypt

Year 2011 2012 2013 2014 2015 2016
GDP (billions US$) 231.22 260.15 255.20 274.65 - -
Total Outstanding Amount (Billion US$) 89.46 114.36 124.40 - - -
Bonds 40.48 52.86 58.94 - - -
Bills 48.98 61.51 65.45 - - -
Outstanding Amount/GDP (%) 38.69% 43.96% 48.74% 0.00% - -

News

Country Summary

After the ouster of President Mohamed Morsi in July 2013, one year after he took office, Egypt entered another phase of political uncertainty. Economic growth has moderated, standing at just above 2% in both the 2011/12 and 2012/13 fiscal years. In 2012/13, the resilience of private consumption (81.2% of GDP) and the munificence of government consumption (11.7% of GDP) kept the economy from sliding into recession, as investment (14.2% of GDP) and exports (17.6% of GDP) remained weak. Unceasing violent protests and political instability have adversely affected manufacturing (15.6% of GDP), trade (12.9%) and tourism (3.2%). Only traditional sectors such as agriculture (14.5% of GDP) and mining (17.3%) have remained relatively unscathed.

The budget deficit, at 13.7% of GDP in 2012/13, is unsustainably high, and the highest among all emerging economies. The fiscal deficit in 2013/14 is expected to exceed 12% of GDP, well past the government’s target of 9.1%, as fiscal reforms are off the table for the present. In 2012/13, Egypt’s total public debt reached 99% of GDP, a level last seen in 2006/07. Public domestic debt reached 87.1% of GDP in June 2013, up from 78.6% in June 2012, resulting in interest payments of 8.4% of GDP. For the first time in four fiscal years, Egypt’s balance of payments recorded a surplus (USD 237 million) in 2012/13, aided by about USD 16 billion in financial support from the Gulf countries. This has eased the pressure on the exchange rate of the Egyptian pound against the US dollar and increased reserves to USD 17 billion as of December 2013, up from USD 15.5 billion in June 2012.

International credit rating agencies have recently taken a favourable view of Egypt’s economic outlook because of the massive inflow of funds from the Gulf (United Arab Emirates, USD 7 billion; Saudi Arabia, USD 5 billion; and Kuwait, USD 4 billion). A longer-term solution to restore Egypt’s economic competitiveness would be gradual structural reforms of its wasteful energy subsidies and taxation. By targeting subsidies to the neediest segments of its society, Egypt will bolster its social justice agenda and provide room for its fiscal policies to work better to reduce poverty. Economic reforms, however, require a stable political dispensation.

To give hope to youth, many of whom are becoming poorer, Egypt needs to implement policies that will help its small and medium-sized enterprises (SMEs) to capture the benefits of global value chains, especially in the area of information and communication technology, given the country’s large market, language advantages and proximity to Europe, Asia and the Persian Gulf.

Prior to the 2011 revolution, the Egyptian government implemented several economic and financial sector reforms, which included the creation of an efficient and a well capitalized banking system as well as the development of a capital market. As a result, more than two hundred companies are listed on the Egyptian Stock Exchange (EGX) reporting a total market capitalization of LE 500 billion at the end of 2014.

The banking sector, in 2004, underwent a restructuring during which time the government sold several national banks to foreign banks. Banque Misr, Banque du Caire and National Bank of Egypt are the three remaining state-owned banks. However, these three banks represent 40% of the banking sector’s assets.

The Egyptian government issues US dollar and Egyptian pound-denominated debt instruments. Corporate bonds are available in the market even though the corporate bond market is nascent. The Government Bonds include Treasury Bonds, Housing Bonds and Development Bonds. The Government Bonds and Corporate Bonds are traded on the EGX.

Source: African Economic Outlook

Monetary policy & Public debt

The Ministry of Finance through the Central Bank of Egypt (CBE) uses bonds to finance its borrowing needs in the medium and long-term, with the goal of reducing its cost of debt. In addition to being used for monetary and fiscal policy, government bonds are used for general market purposes such as to indicate the risk-free rate in the country as well as serve as benchmarks for pricing corporate debt.

Monetary policy decisions are taken by the Monetary Policy Committee (MPC), which consists of nine members, including the Governor of the CBE, the two Deputy Governors, and six members of the Board. The schedule of the MPC meetings and its decisions are available on the CBE website. 

The MPC decisions are implemented through a set of policy instruments and procedures. The CBE uses two standing facilities (deposit rate and the rate for funding) as the main policy instruments, providing the outer limits of a corridor in which the overnight rate will fluctuate between banks. The CBE continues to manage market liquidity through its main refinancing operations of the mark

Market Structure

Instruments issued and Market participants

Instruments issued

Tresaury Bills (T-Bills): Maturities available are 91 days, 182, 273 and 364 days.

Treasury Bonds (T-Bonds): Maturities available are 3y, 5y, 7y and 10 years.

  • Treasury Bills (T-bills) are issued weekly;
  • During the second and fourth week, four treasury bills (T-Bills) are issued;
  • The auctions of Treasury bonds always include maturities of 3 and 5 years and issued everyother week.
  • Government bonds with a 7 year maturity are issued only in February and government bonds with a 10 year maturity are issued in August.

Zero Coupon Bonds: Maturity of 18 months. This instrument was first launched in 2013.

In June 2013, the average yield to maturity of the T-Bonds portfolio was 16% with an average life of 2,73 years. 

Market participants

The Ministry of Finance of Egypt is responsible for the management of the Government of Egypt’s debt. The Egyptian government issues its fixed income securities by tender. The Central Bank of Egypt (CBE) conducts Dutch Auctions on a weekly basis, following a schedule that is published quarterly.

Auctions are conducted through the intermediation of Primary Dealers (PDs) approved by and registered with the Ministry of Finance. These institutions (mainly composed of 15 banks) have to meet standard requirements defined by the Ministry of Finance and the Egyptian Financial Supervisory Authority (EFSA).

The three main tasks of Primary Dealers are:

  • To ensure the full subscription of government bonds by underwriting the initial offering
  • To ensure the liquidity of the secondary market by acting as market makers
  • To promote Egyptian Sovereign Debt

Commercial banks are the main players in the bond market. Foreign investors have always been absent from this market even if there are no restrictions to their participation.

Primary and Secondary Markets

Primary Markets

A schedule of programs is published on a quarterly basis on the website of the Ministry of Finance. Auctions of government securities are conducted on a weekly basis. The type of instruments and amount are announced before the auctions on Reuters and the Central Bank of Egypt’s website. PDs submit bids for their proprietary account and also for non-Primary Dealer institutions and individuals at the request of the institution or individual.Each Primary Dealer must submit minimum bids for a percentage of each auction. This percentage will equal 150% of each dealer’s proportional share of the security market.  

No Primary Dealer or customer may be awarded more than of 30% of any auction.

Secondary Markets

T-Bills are traded over-the-counter.T-Bonds issued in the primary market are listed and traded on the Egyptian Exchange (EGX).Poor liquidity has helped keep yields on Egypt's locally denominated treasury debt high.

Clearing, Settlement and Custody

To further develop its payment systems, the Central Bank of Egypt implemented the Real Time Gross Settlement (RTGS) in March of 2009. The clearing and settlement process in Egypt is based on the principle of delivery versus payment (DvP). The Misr for Central Clearing, Depository and Registry (MCDR) acts as a clearing house between clients. 

Protection of Investors

A LE 30 million settlement guarantee fund was set up to eliminate unsettled transactions in cash or by shares on behalf of the defaulting party.  In addition, an insurance fund was created in 2004 to protect market participants against non-commercial risk, monitoring the activities of listed companies.

Guide to Buying Bonds

Procedures for market participation

Before investors can trade in securities listed or traded on the Egyptian Stock Exchange (EGX), Investors are required to open a brokerage account with a licensed member of the EGX or a brokerage firm approved by the Financial Markets Authority. All investors must open accounts with the "guardians", which are primarily banks and other members. This enables the EGX to see their account balances online before all sales transactions. Trading in the Egyptian markets is through the EGX’s Trading System.

Licensed Members firms of the EGX must register their customers' orders immediately upon receipt. Members must ensure that the securities being sold are available before the execution and if members do a purchase order for securities, they must ensure that the necessary funds are available before executing the transaction.

Settlement cycle

The settlement is as follows:

  • T+0 for equities processed from intra-day trading 
  • T+1 for Treasuries processed from the Primary Dealers System
  • T+2 for all other asset classes

Taxation

No tax is levied on dividends and capital gains for investments by individuals, companies, mutual funds and international funds. In addition, there are no stamp taxes duties on investments in securities. Interest income on corporate bonds is tax-exempt. However, interest income on treasury bills is taxed at 20%. 

Egypt has signed tax treaties with the United States and the United Kingdom. Therefore, investors from these countries are taxed at 15% instead of 20%.

Rating

Rating AgencyCurrent ratingOutlook
Moody'sCaa1Stable
FitchB-Negative
Standard and Poor'sCCC+Stable

Primary dealers

The EGX publishes the list of Primary Dealers on a daily basis on its website.  

Market restrictions

Openness to international investors 

There are no restrictions that exclude foreign investors from participating in the Egyptian capital market. Moreover, foreign investors and members of foreign firms are treated in the same way as their Egyptian counterparts.

Capital control

The transfer of proceeds of sales of foreign customers limits the attraction of the Egyptian Stock Exchange for foreign investments. Therefore, the MCDR in collaboration with the Financial Markets Authority and the Central Bank of Egypt has developed a new mechanism to transfer the value of these transactions.

Restrictions on FX and profit repatriation 

There is no rule against the repatriation of profits or capital gains. 

Documents & Resources

Documents - Ministry of Finance

Documents - Central Bank