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What Causes the Outflow of Hot Money from Egypt?


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Egypt is one of the countries paying the highest interest on loans in the world, and despite this, the so-called hot foreign money is fleeing Egypt.

Egypt is paying the highest interest rate in the world for borrowing and holding hot money, due to its growing reliance on short-term debt, whose share of total external debt has risen from 7% in 2013 to 7% in 2013, according to a report published by the American University in Cairo’s Alternative Policy Solutions Project. to more than 17% in 2013 2021 – in an unstable economic reality.

Adding to the fragility of the situation, according to the same report, Egypt’s growing reliance on short-term debt, through the purchase of government securities by foreigners in the form of bonds with high interest rates, which by their nature are fast-moving funds that are very vulnerable to global conditions, and therefore are called hot money – of which about $22 billion came out of Egypt suddenly as a result of the Russian-Ukrainian war – which, together with the US interest rate hike in 2022, put a lot of pressure on limited dollar resources.

Egypt’s default swap contracts, which are used to hedge the risk of non-payment, registered the biggest increase in the world in March 2023 after the Ecuador contract, indicating a decline in foreign investor confidence in Egyptian bonds.

The report added that over the past ten years, Egypt has expanded its external borrowing, increasing by about 277%, and now it is the second largest client of the IMF after Argentina, the country that borrows the most from the Fund.

Government data showed an increase in Egypt’s external debt, reaching a historical level of $162.9 billion at the end of December 2022, compared to $145.5 billion at the end of 2021, an increase of about $17.4 billion, or 11.9%, in just one year. .

A report from the Alternative Policy Project at the American University in Cairo says that Egypt has about $9 billion in foreign debt repayments in fiscal year 2023, which ends next July, and needs $41 billion to cover debt payments and the current account deficit. until the end of 2023.

Despite the obligation to publish information on changes in external debt on a regular basis, it usually arrives several months late, which often leads to reality exceeding it. The latest published external debt figure is equivalent to 5 times the foreign exchange reserve of the Central Bank of Egypt, which in February 2023 new external loans in 2023, including the issuance of Islamic sukuk worth $ 1.5 billion. – The ratio of external debt to to foreign exchange reserves has now exceeded the indicated 5 times.

Amr Adly, Associate Professor of Political Science at the American University in Cairo, believes that the main justification for expanding foreign borrowing in Egypt was to restore the macroeconomic environment to re-attract foreign capital in the form of investment, so as to kick-start economic growth and boost employment while closing the gap. However official data showed that the growth rate of external debt was much faster than the growth in foreign direct investment since 2016, which has not seen significant growth in the past decade.

Source: Cairo 24

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