S&P: Egypt’s Soaring Interest Rates Attract Investors but Carry Risks

Ratings agency Standard & Poor's (S&P) warned in a report on Sunday that Egypt must find a way to pay less on its debt if it is to withstand a possible increase in global interest rates.

Egypt has the highest differential between key policy rates and inflation among the more than 50 economies, making its bonds and t-bills a favorite among international investors.

Meantime, Egypt's foreign holdings stand at more than $28 billion, an important safeguard as tourism awaits a full recovery from the coronavirus pandemic.

"The world's highest real interest rates also come with a high fiscal cost and leave Egypt vulnerable to large outflows if rates rise in the developed world — particularly if the US Federal Reserve cuts quantitative easing policies incrementally faster than expected," S&P GR credit analyst Zahabia Gupta wrote in the report.

According to Gupta, “Egypt’s interest-to-revenue ratio and interest payments as a percentage of GDP are among the highest among all ranked sovereigns.” “The potential path for Egypt to lower the interest bill is to increase investor confidence in its economic model so that investors reduce the risk premium they demand on Egyptian government debt.”