Goldman Sachs economist, Farouk Soussa indicated that estimates suggest the ministry received approximately EGP 240 billion from the initial tranche of the Ras El Hekma deal with the UAE
Global investment firm, Goldman Sachs, forecasts a significant decrease in Egypt's borrowing needs for the 2nd quarter of this year, pointing towards the substantial financing it secured during Q1 2024 and the Ras El Hekma investment deal.
Despite anticipating ongoing downward pressure on returns, the firm explained in a research note obtained by the Arab World News Agency that the Ministry of Finance issued domestic debt instruments worth EGP 1.8 trillion in Q1 of 2024.
Goldman Sachs economist, Farouk Soussa indicated that estimates suggest the ministry received approximately EGP 240 billion from the initial tranche of the Ras El Hekma deal with the UAE.
Considering Egypt’s total financing needs, estimated at EGP 1.1 trillion and includes the budget deficit and domestic debt extension, the country has achieved a significant surplus during the first 3 months of the year.
Some of this surplus has been used to settle the ministry’s overdraft facilities with the Central Bank of Egypt, around EGP 382 billion, in the January – March period.
With this, the Ministry of Finance is expected to have secured financing in advance of around EGP 530 billion by the end of March 2024.
The note explained that Egypt's total public financing needs are expected to reach EGP 1.6 trillion in Q2, including EGP 1.1 trillion of total financing requirements and additional repayment of overdraft facilities from the central bank worth EGP 450 billion.
Balancing this out would be EGP 530 billion in pre-financing along with the assumption that Egypt will receive EGP 340 billion from the 2nd tranche of the Ras El Hekma deal.
Goldman Sachs estimated that this leaves Egypt with a remaining need for EGP 724 billion for the current quarter (Q2). The firm suggested that these remaining needs will likely be met through local debt issuances, estimating that Egypt will issue around EGP 240 billion per month in Q2.
The note also explained that its estimation of required monthly debt instrument issuances for Q2 is significantly lower than the average monthly issuances in Q1, which is around EGP 604 billion.
The report further highlighted that even with excluding the revenues from Ras El Hekma and assuming they are not allocated to finance the budget, the average monthly financing needs are projected to halve in Q2.
Goldman Sachs attributed this decrease in financing needs to the reduced bid sizes seen since the beginning of the month, along with a decline in returns.
Considering the amount of pre-financing available, expected returns from the 2nd tranche of the UAE deal, a positive outlook on domestic inflation - with inflation forecasted to decline to around 20% annually by the end of the year – and the possibility of interest rate cuts in Egypt as early as next month, Goldman Sachs believes that there will be a 200 basis point reduction in rates moving forward.
