Egypt is making progress in shielding its infrastructure projects from USD volatility with a new USD 200 mn concessional loan from China Exim Bank — earmarked for phase three of the light rail transit system — to be disbursed in CNY, a government official tells EnterpriseAM. The loan with a competitive 2% interest rate, a five-year grace period, and a 15-year repayment schedule will be used to purchase eight new trains and install electromechanical systems.

Why this matters: While much of Egypt’s infrastructure ambitions directly pressure the country’s USD reserves, this loan is a move toward diversifying debt sources for major state projects. Additionally, as the Suez Canal Authority collects CNY for transit tolls and Chinese manufacturers in the Teda zone increase their local footprint, the state is building a pool of CNY revenue that can be used to service this debt directly.

The loan isn’t just an FX hedge, with the funding set to accelerate the project’s completion, an MP told EnterpriseAM on the condition of anonymity.

But concessionality usually comes with strings. While the 2% rate is attractive, the loan is almost certainly tied to procuring those eight new trains from Chinese firms like AVIC or CREC. This is as much a subsidy for Chinese industry as it is a development loan for Egypt’s transport network.

The move is part of Egypt’s larger push to diversify its creditor base away from banks’ and Bretton Woods institutions’ USD-centric financing options, with the country having already issued a CNY 3.5 bn panda bond issuance in 2023 and liquidity swaps with the China Development Bank. Looking ahead, government officials have previously told us we may see more panda bond issuances, and there’s been talk of Chinese banks opening up shop in Egypt alongside talks on better facilitating local currency trade between the two nations.

What’s next? The loan agreements are currently with the House for ratification, our source tells us.

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