Local debt issuances to hit EGP 2.35 tn in 1Q FY 2025-26: The Finance Ministry has significantly upped its local debt issuance plan for the first quarter of the current fiscal year to EGP 2.35 tn. This marks a substantial increase compared to the EGP 1.4 tn issued in the same period of FY 2024-25, and is also higher than the EGP 2.2 tn issued in 4Q of the past fiscal year, government sources told EnterpriseAM.

This plan aims to effectively manage amortizations of outstanding debt and secure the necessary funding for the state budget. Local debt continues to dominate the country’s funding plans, as the government restricts external borrowing — a move driven by currently high global interest rates, the sources said.

Short-term debt instruments will dominate the anticipated issuances, with treasury bills continuing accounting for nearly EGP 2 tn. Meanwhile, bonds will represent a smaller portion of EGP 350 bn, the sources revealed.

The reason? Simply high interest rates: No one wants to bear the burden of long-term borrowing at the current average interest rate of 27.5%, our sources said, adding that this aligns with the broader monetary policy aimed at lowering interest rates in the coming period. The Central Bank of Egypt decided earlier this month to leave interest rates unchanged in its fourth meeting of the year, in a move that marked a halt in the committee’s easing cycle, after it cut rates by 225 bps in April and 100 bps in May.

The government is adopting a new hedging strategy through relying on floating-rate treasury bills instead of fixed-rate ones during the target period, the sources noted. This precautionary measure is taken in anticipation of potential interest rate cuts, helping safeguard the state budget from the burden of fixed-rate payments on long-term debt.

Early-fiscal-year obligations are pushing the government to borrow EGP 850 bn during July, before this amount falls to EGP 670 bn in August, according to our sources. This is primarily driven by projected increases in government revenues, lessening reliance on local debt.

We can expect to see an updated medium-term debt management strategy before the year is out, which will detail an annually updated multi-year borrowing strategy, guided by a portfolio cost and risk management framework, the IMF recently stated in its country staff report for the fourth review of our USD 8 bn loan program. A senior government source previously told us that the new public debt strategy for 2025-2030 could be released before the current quarter wraps. The strategy aims to extend the average maturity of public debt to 4.5-5 years, up from 1.8 years currently.

Speaking of our financing needs, they are expected to rise over 25% during the current fiscal year to reach EGP 3.6 tn. The government seeks to cover the budget deficit through issuing new local debt instruments worth EGP 2.2 tn in treasury bills and some EGP 928.9 bn in treasury bonds as part of the government's plan to raise spending on social welfare and fill the budget shortfall.

Egypt is expected toface a financing gap of USD 5.8 bn in FY 2025-26, compared to USD 11.4 bn in FY 2024-25, according to the IMF.

ICYMI- Egypt plans to issue up to USD 4 bn in international bonds over the next year to help address its USD 11 bn external financing gap, Finance Minister Ahmed Kouchouk said last week. The planned issuances could include EUR- and USD-denominated securities, sustainability bonds, sukuk, and even CNY- or JPY-denominated instruments. These issuances would cover about 40% of the country’s external funding needs. The remainder is expected to come from concessional financing.

REMEMBER- Authorities are also mulling EGP-denominated sukuk and retail bonds for the domestic market this fiscal year to offer new savings instruments and increase liquidity. Last month, the Finance Ministry completed a USD 1 bn sovereign sukuk issuance on the Vienna Stock Exchange via private placement, which was fully subscribed by Kuwait Finance House.

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