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The British Economist magazine states in a report that since last May, foreigners have invested more than $ 10 billion in domestic government debt instruments proposed by the Egyptian Ministry of Finance, in a completely opposite direction to what happened in the first days of the outbreak of the ‘ epidemic. COVID-19 “.
The same is true for all Arab countries, as Gulf Cooperation Council countries issued public debt and corporate bonds worth $ 100 billion in the first ten months of this year, and in Tunisia, the Central Bank it rejected the government’s plans to buy Treasury bonds with the aim of reviving the economy and helping local investors.
Record your borrowing rates
Even before the outbreak of the pandemic, Arab countries had resorted to borrowing to cope with low oil prices and economic stagnation, and the spread of the epidemic exacerbated the situation, and by next year, public debt rates in many Arab countries will be at the highest levels of the past two decades.
In the 11 countries exporting oil and gas to the region, the debt volume reached around 25% of GDP between 2000 and 2016, and the International Monetary Fund expects the ratio to reach 47% next year.
In the Kingdom of Saudi Arabia, the debt-to-GDP ratio is expected to reach 34%, after it was estimated at 17% in 2017, and debt levels in Kuwait and the UAE are expected to reach 37% and 38%.
According to the magazine, the situation will be more dangerous in Bahrain, as the debt-to-GDP ratio is projected to reach 131% next year, compared to 89% in Oman.
The outlook appears negative for the Gulf countries, above all because the new closures in Europe and the United States of America led to a drop in oil prices in October.
Corona aggravates the crisis
The spread of the Corona virus has spoiled the course of financial reforms undertaken in recent years by some countries in the region. In Egypt, for example, in 2016 the government reached an agreement with the International Monetary Fund to obtain a loan of 12 billion dollars, reduce subsidies and impose a value added tax, which led to a decline in the deficit from 11% of GDP in 2016 to 7% last year.
Egypt was about to reduce its public debt-to-GDP ratio to 79% in 2021, but the epidemic forced it to take out a new loan from the International Monetary Fund worth $ 5.2 billion and its debt is expected to increase. next year to reach 91% of GDP, followed by Jordan, at 89%, and Tunisia, at 86%.
For now, at least, investors seem enthusiastic about Egypt’s sovereign debt, yields are high, and Abdel Fattah El-Sisi’s authoritarian government has removed fears of political unrest in the country.
But the situation remains subject to change at any time, according to the magazine, as happened precisely between the months of March and May, when 12.7 billion dollars came out of the country.
The magazine clarifies that the loan does not in fact bring significant benefits to the economies of Arab countries. In Kuwait, for example, more than 70% of the state budget goes to salaries and allowances in the public sector.
Arab countries were also not generous in spending on stimulus measures during the Corona pandemic and allocated 2% of GDP to aid, which is less than the 3% allocated by emerging markets.
According to the magazine, the loan helped Arab countries to relatively overcome the current crisis, but in return exacerbated some problems, as Egypt spent around 9% of GDP on debt servicing.
As oil prices continue to decline and vital sectors like tourism falter, the Economist believes the new debt will place an additional burden on Arab governments and limit their ability to weather the economic downturn.
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