Egypt prepares to obtain $500 mn in financing from China as it seeks to close funding gap

Egypt is in the process of obtaining US$500 million in financing from China, an informed source at the Finance Ministry told Mada Masr.

The news comes after the announcement of China’s plans to redirect US$10 billion from its International Monetary Fund reserves as a financing package to African countries, as Chinese Foreign Minister Wang Yi had announced in August’s Forum on China-Africa Cooperation. 

According to the Finance Ministry source, Egypt will acquire the new financing through the issuance of Chinese yuan-denominated Panda bonds during the first quarter of 2023. The issuance — in consideration since August — will come as Egypt seeks to attract as much financing as possible to plug its financing gap, the source noted.

Last Wednesday, Finance Minister Mohamed Maiet told the press that the government is planning on issuing Panda bonds in the first or second quarter of 2023 and is currently consulting with several banks on promoting the debt instruments. He also added that the government aims to complete its first offering of sovereign sukuk next year, with a value of about US$2.5 billion, and offer another round of Japanese yen-denominated bonds. 

As Cairo looks to secure final approval from the International Monetary Fund’s Executive Board on its new loan agreement in the coming days, Egypt’s significant funding gap has been a key issue preventing the deal from going through, a source close to the negotiations previously told Mada Masr. Egypt must secure pledges to close this gap in order for the IMF to table the funding facility program, the source said.

The board has scheduled a meeting on December 16 to discuss Egypt’s “Request for Extended Arrangement Under the Extended Fund Facility.”

Wang had also said in August that China would forgive 23 interest-free loans to 17 African countries that he did not name. It remains unclear if Egypt is among those countries. He added that the loans matured at the end of 2021, but did not provide their total value either.

According to central bank data, Egypt’s total external debt was at about US$155.7 billion at the end of June 2022, about $17.8 billion over the previous fiscal year. The central bank attributed this increase to the rise in the net exchange of loans and facilities by US$22.5 billion, as well as the increase in the US dollar’s exchange rate against other currencies.

Among those debts, China's dues amounted to about US$7.8 billion at the end of June, up from US$7.6 billion in March 2022, making Beijing Egypt’s fourth largest creditor — at 5 percent of the total external debt.

Since 2000, Beijing has announced multiple rounds of debt forgiveness of interest-free loans to African countries, canceling at least US$3.4 billion of debt by 2019, according to a study quoted by Bloomberg. However, the vast majority of China’s recent lending in Africa — such as concessional and commercial loans — have never been considered for cancellation, the report added, though some of it has been restructured.