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Al-Ahram Weekly
18-04-2025
- Business
- Al-Ahram Weekly
Betting on sukuks - Egypt - Al-Ahram Weekly
Egypt is set to embark on its second sukuk bond offering, promising attractive yields for investors Egypt is preparing to issue $2 billion in sovereign sukuk (Islamic bonds) before mid-year through a series of offerings, with the government having assigned several banks to manage the issue, Finance Minister Ahmed Kouchok said this week. The ministry's last sukuk offering was two years ago. Press reports indicated that the banks in charge of this year's offering are the same as those that orchestrated the 2023 issuance, namely HSBC, Citibank, the Dubai Islamic Bank, First Abu Dhabi Bank, and the Abu Dhabi Islamic Bank. Mohamed Hassan, managing director of Alpha Financial Investment Management, believes the issue will be a success, citing Egypt's stable credit ratings. He pointed out that the return on Egypt's sukuk bonds will hover at around eight per cent or higher, almost double the yield of US debt and likely to increase demand for the sukuks. Even with the presence of calculated risk due to geopolitical challenges, the Egyptian issuance is appealing to high-yield-seeking investors, Hassan said. The Ministry of Finance has secured approval for international sukuk issues totalling $5 billion. In early 2023, it launched the first $1.5 billion tranche, which was more than four times oversubscribed, said a ministry statement released last week. The final cost of the 2023 issuance was more than 70 basis points lower than comparable yields on Egypt's bonds in the secondary market. The yield was reduced by 72.5 basis points from the initial 11.675 per cent to a final issuance yield of 11 per cent, said former finance minister Mohamed Maait at the time. Hassan believes that the government chose to issue sukuk rather than traditional bonds due to their lower issuance costs, asset-backed nature, and stronger government guarantees. The main objective behind the issue is to make up for capital outflows associated with the maturity of earlier dollar-denominated bond issues. Press reports noted that the banks will promote the new issue by organising roadshows to the Gulf and East Asia. They added that the timing will be determined by the advisors to the offering, but it is expected to take place within the current quarter, as the roadshows are projected to last around two months. On the impact of the issue on Egypt's external debt, Hassan said debts due to be paid this year will be replaced with the new sukuks, as approximately $2 billion will be repaid thereby maintaining the external debt at the same level. According to the Central Bank of Egypt (CBE), the country's external debt has risen by $2.3 billion in three months, reaching $155.2 billion by the end of the first quarter of fiscal year 2024-2025, up from $152.9 billion at the close of 2023-2024. 'The sukuk issuance is part of the government's plan to diversify its debt instruments,' said economic expert Mona Bedeir. 'The coming months will be crucial in determining both the local market's stability and investor appetite for this issuance.' The offering gives Egypt access to an untapped liquidity pool as the sukuk market is largely dominated by Gulf sovereign wealth funds and investors from major Southeast Asian Sharia-compliant funds. This, according to Bedeir, paves the way for Egypt to leverage its role as an emerging player in the market for Islamic bonds, helping it to strengthen its economic ties with its major players and reducing its exposure to the volatility of US and European markets. * A version of this article appears in print in the 17 April, 2025 edition of Al-Ahram Weekly Follow us on: Facebook Instagram Whatsapp Short link:
Al-Ahram Weekly
07-03-2025
- Business
- Al-Ahram Weekly
More social support in the offing - Economy - Al-Ahram Weekly
Around 10 million low-income ration card beneficiaries will be getting financial assistance of LE125 to LE250 depending on the size of the family during Ramadan and once again during Eid Al-Fitr as part of a newly announced social protection package. The package includes measures that will be implemented in the new fiscal year starting in July, and others that will be in force between March and July. The holy month will also witness the 5.2 million families included in the Takaful and Karama social protection programmes receiving one-off assistance of LE300. The wide-ranging new package announced by Prime Minister Mustafa Madbouli last week includes an increase of 17 per cent in the minimum wage of public sector workers to reach LE7,000 starting in July, also the starting date for pensioners to receive a 15 per cent increase in their pensions. State employees and workers in state economic entities will receive monthly increases ranging from LE1,000 to LE1,200, depending on job grade. An additional LE15 billion has been allocated to enhance the salaries of doctors, nurses, teachers, and university faculty members. The increases in wages and pensions will cost the state LE85 billion, said Ahmed Kouchok, the minister of finance, who added that 4.5 million state employees and 13 million pensioners will benefit from the increases. This is in addition to permanent increases of 25 per cent in the monthly allowances of Takaful and Karama beneficiaries, with the starting date any time between March and July. Irregular workers will be granted a bonus of LE1,500 six times a year. As part of the new package, the government will establish a LE10 billion economic empowerment fund to create job opportunities for youth, equip them for the labour market, and support entrepreneurial ventures, Kouchok said. A Finance Ministry statement added that the new package includes a LE3 billion allocation to treat 60,000 patients on limited incomes at government expense, in addition to another LE3 billion to treat the most needy who are not covered by any kind of medical insurance during a three-month period starting this month. Mohamed Abu Basha, chief economist at investment bank EFG Hermes, believes the new package will not lead to an increase in the budget deficit, saying that some of its items, such as periodic salary increases and pension raises, were already factored into the budget, while others are financed through budgetary reserves. He noted that the government has sought to diversify the spending in the new package to implement various forms of support, including ration card subsidies, salary increases, cash assistance, and healthcare services. While these measures offer some relief to low-income households, the increases remain below the rate of inflation, particularly given the cumulative rise in prices over the past two years, he said. Achieving income parity with inflationary pressures will be a long-term process. Egypt's annual inflation rate has been on a slowing streak for the last three months to reach 24 per cent in January compared to 29.8 per cent and 35.7 per cent in January and February 2024. However, the decline has been mainly due to the base effect, which means that the comparison between the rate of increase in prices this month to that of the corresponding month a year ago gives a low reading because last year's was high and not because prices are getting lower. Mohamed Hassan, managing director of Alpha Financial Investment Management, said that while the new package represents an effort to enhance household incomes, it remains insufficient in the light of rising inflation and surging prices. He said the raises would offer temporary relief, but more packages are needed. The most recent increase in the minimum wage for public sector employees occurred in early 2023, when it rose by 50 per cent to LE6,000 as part of a broader LE180 billion social protection package. Last month, the National Council for Wages decided to increase the minimum wage for private sector workers from LE6,000 to LE7,000 starting in March. The first package was introduced in 2020 costing the state LE100 billion and meant to support economic sectors affected by the Covid-19 pandemic. The second package was announced in April 2022 and was valued at LE78 billion. It aimed to mitigate the economic fallout of the Russia-Ukraine war. In September 2022, the third package, amounting to LE67.5 billion, was launched to support vulnerable groups facing mounting economic hardships. April 2023 saw the introduction of the fourth package, worth LE150 billion, which was meant to address escalating living costs. The fifth package, in October 2023 and totalling LE60 billion, sought to counter successive waves of inflation. In March 2024, the sixth and largest package to date was launched, with LE180 billion in allocations. This was intended to support people struggling with additional economic pressures. * A version of this article appears in print in the 6 March, 2025 edition of Al-Ahram Weekly Follow us on: Facebook Instagram Whatsapp Short link:
Al-Ahram Weekly
28-01-2025
- Business
- Al-Ahram Weekly
Tax overhaul - Economy - Al-Ahram Weekly
MPs approve three draft laws that seek to offer incentives to small investors, simplify procedures and speed up the settlement of tax disputes Following lengthy discussion on Sunday, the House of Representatives approved three tax-focused draft laws offering new incentives to small-scale enterprises, unifying and improving tax services and speeding up the settlement of disputes. 'The drafts aim to improve the financial performance of the state and promote investment,' said House Speaker Hanafi Gebali. He expressed the hope that the laws would enhance Egypt's ability to attract international investment. According to Finance Minister Ahmed Kouchok, the three laws are the first phase of a package of measures that will overhaul the tax system and ease the burden on taxpayers. 'The package has been discussed with key economic players and, on the basis of these discussions, has been amended to meet the needs of taxpayers and investors,' said Kouchok. MPs gave final approval to a 15-article draft law granting tax incentives to businesses with an annual turnover of up to LE20 million. The original draft submitted by the government had placed the threshold at LE15 million. It was raised at the request of Abdel-Hadi Al-Qasabi, parliamentary spokesman of the majority Mostaqbal Watan Party, who argued the increase was necessary given high inflation rates and the depreciation of the Egyptian pound. A report prepared by the Budget Committee said the draft bill seeks to support small and micro enterprises (SMEs) while expanding the tax base and integrating informal businesses into the national economy. Article 7 states that businesses with an annual turnover below LE20 million will be exempted for five years from financial development fees, stamp tax, company registration fees, land registration fees and tax, and fees linked to credit facilities and mortgage contracts. Article 8 exempts the same businesses from capital gains tax on the sale of fixed assets and production machinery and Article 9 contains a blanket tax exemption on profits. Article 4, however, exempts companies that generate 90 per cent of their annual turnover from consultancy services from the provisions of the law. Mohamed Suleiman, head of the House's Economic Affairs Committee, said the draft legislation is in line with Egypt's 2014 constitution which requires that the government support small and micro-scale enterprises and start-ups. He pointed out that 'small-scale enterprises contribute 80 per cent of Egypt's GDP and play a leading role in creating job opportunities, meeting local market needs and boosting exports.' Several MPs objected to Article 3, which stipulates that businesses must join the Egyptian Tax Authority's (ETA) Electronic Invoice and Receipt System to benefit from the package of tax incentives. MP Talaat Abdel-Qawi criticised the law far including NGOs and civil society organisations involved in development projects as part of the private sector for tax purposes even though they are non-profit entities. He argued that many NGOs will find the requirement that they join the ETA's Electronic Invoice and Receipt System burdensome. In response, Kouchouk said exempting entities from the Electronic Invoice and Receipt System would undermine the government's strategy to expand financial inclusion. MPs also approved a draft bill that will allow taxpayers who failed to submit their tax reports by the deadline to file them without facing financial penalties. A government-drafted explanatory note said taxpayers who fail to submit their tax reports on time currently face fines of up to LE1 million. Article 3 of the new law will allow taxpayers who failed to submit their tax returns for 2020, 2021, 2022, and 2023 to do so without incurring penalties. The third law aims to expedite the settling of tax disputes within the framework of the ETA's shift to a digital system. Deputy Chairman of the Budget Committee Mustafa Salem said the value of late tax payments had reached LE400 billion and 'hopes are high that the new law will help recoup this sum ahead of the ETA moving to a fully digital system.' Kouchok told MPs that by streamlining the way in which tax disputes are resolved, the 11-article law will contribute to creating an attractive investment environment and building greater trust in the tax system. 'The law will also help the ETA settle accumulated tax disputes while moving away from a paper to a digital system,' said Kouchok. He argued that the draft laws open a new chapter in the relationship between the ETA and the business community, based on partnership and support, and will allow the ETA to focus on upgrading its services and expanding the tax base to benefit the state, investors, and citizens. * A version of this article appears in print in the 30 January, 2025 edition of Al-Ahram Weekly Short link:
Al-Ahram Weekly
28-01-2025
- Business
- Al-Ahram Weekly
Towards better-managed foreign debt - Egypt - Al-Ahram Weekly
The Ministry of Finance is planning the gradual reduction and diversification of Egypt's foreign debt The overall value of the bonds Egypt plans to issue in the international markets during the coming six months will not exceed $4 billion, Minister of Finance Ahmed Kouchok told reporters on the fringe of the World Economic Forum meeting in the Swiss city of Davos last week. He noted that plans for international debt offerings are on the right track, stressing that the second half of 2024-25 would see several different offerings and marking Egypt's return to the international debt market. Most of these offerings will be dollar-denominated. Egypt's last sovereign bond offering was in 2021 when it gathered $6.75 billion through two separate Eurobonds issues. Eurobonds are bonds traded in the international market in any currency. Kouchock noted that his plans include the possibility of issuing Islamic bonds (sukuk). Egypt's first and only attempt to tap the sukuk market was in 2023 with a $1.5 billion issue. Unidentified local official sources told the Enterprise online news outlet last week that Egypt plans to issue $1 to $1.5 billion worth of Eurobonds or green bonds in international markets as soon as next month, followed by an issuance of sovereign sukuk bonds. Kouchok also told Asharq News during the Davos meetings that Egypt is pursuing agreements to swap debts for assets and investments with several investors and international institutions. He named the Ras Al-Hekma deal, which saw the Abu Dhabi Sovereign Fund ADQ pumping $24 billion in investments to develop the project, together with the UAE transferring $11 billion of its deposits at the Central Bank of Egypt (CBE) to investments in it, as a 'good example of a debt swap deal that is beneficial for both parties and that we hope to repeat.' The Ras Al-Hekma project is a real-estate development project on Egypt's North Coast. The receipts of the deal have helped Egypt to increase its foreign-currency reserves and reduce its foreign debt. These were not the only announcements related to the country's foreign debt made at Davos, as on Saturday a statement by the Finance Ministry denied that Egypt had acquired any new loans and asked the media to exercise due diligence in its reporting. The statement came on the back of media reports based on a press release issued by Emirates NDB, a UAE-based bank, on Friday stating that Egypt had acquired a $2 billion loan from a select group of Islamic and conventional investors. Emirates NBD and the Standard Chartered Bank had organised the deal in which Egypt had asked for a $1.5 billion loan. However, the offers had come in at 2.5 times the asked sum, so the Ministry of Finance had decided to raise the value of the loan to $2 billion, according to the press release. 'This is not a new loan,' Sherine Al-Sharkawy, assistant finance minister for economic affairs, told the prime time TV talk show Kelma Akheera on Saturday night. 'It is the loan that parliament approved in December and that the Ministry of Finance announced back then.' She noted that while the ministry had disclosed the loan in December, the Emirates bank had announced the deal almost a month after its being signed as 'completing the necessary documentation and translation of the deal into Arabic took time.' The press release noted that this syndicated facility aligns with Egypt's strategy to diversify sources of funding through access to international and regional syndicated loan markets. The proceeds of the facility, according to the press release, will primarily be utilised to finance the country's budgetary requirements and support it in safeguarding its strong economic path in the prevailing volatile global markets. It also said that the loan was agreed upon following the settlement of a previous $3 billion syndicated facility in November, which means Egypt is maintaining a decreasing debt trajectory. Kouchok said he aims to reduce the country's foreign debt by $2 billion annually to ensure borrowing remains below repayments. Egypt has repaid a total of $38.7 billion of debt dues in 2024, according to Prime Minister Mustafa Madbouli. According to CBE figures, the dues on the debt and its servicing this year come in at $22.4 billion. However, the minister of finance put the figure for external debt repayments in 2025 at $16 billion. He told Kelma Akheera two weeks ago that 80 per cent of this sum will be covered by local resources while the remaining will be obtained through loans. The latest available figure for Egypt's foreign debt was $152.9 billion, or 89 per cent of GDP, at the end of June 2024. This is $15 billion less than its level at the end of December 2023. The government is targeting a public debt-to-GDP ratio of around 85 per cent by the end of the current fiscal year, according to Kouchok. Kouchok should shortly reveal a comprehensive strategy to manage the public debt. Observers believe that the new strategy will maintain the previous finance minister's plan of increasing the average maturity of foreign debts by rolling over existing short-term debts with longer-term ones. According to the latest figures from the CBE, the value of the long-term foreign debt decreased to $126.8 billion at the end of June 2024, compared to $138.5 billion in December 2023. Short-term loans also declined from $29.48 billion at the end of 2023 to $26.24 in June 2024. Egypt is still struggling to increase its foreign-currency resources. In the first quarter of fiscal year 2024-25, a 61 per cent drop in Suez Canal receipts due to disruption in the Red Sea together with an 82 per cent hike in oil and natural gas imports on the back of the slowdown in local production led to a balance of payments deficit of $991.2 million. This is compared to a surplus of $228.8 million in the corresponding quarter of 2023-24. The country is about to receive a $1.2 billion tranche from its International Monetary Fund (IMF) loan, the fourth and largest so far. The EU disbursed €1 billion in loans to Egypt in December following the fulfillment of the policy conditions agreed with the EU under the ongoing Macro-Financial Assistance (MFA) programme. * A version of this article appears in print in the 30 January, 2025 edition of Al-Ahram Weekly Short link:
