Cairo- Less than 3 months after it was placed on the negative review list, the American bank JP Morgan decided to exclude Egypt from its index of government bonds in emerging markets, as of January 31.
The Egyptian government was apparently unable to correct its situation to maintain its presence within the index, which it fought hard to return to for the first time in 2022 after being removed from it in the wake of the January 25, 2011 revolution due to the difficult economic conditions.
JP Morgan – the largest US bank – attributed this step to the fact that Egypt had been subject to monitoring the index since September 21, 2023 due to the inability of investors to transfer their money into hard currency abroad.
A quick exit after a long absence
In addition, Egypt’s weight in the global index declined until the end of last year to 0.61%, as it owned 13 Egyptian pound bonds in its indices with maturities ranging between 2024 and 2030.
The decline in the relative weight in the index comes as a continuation of its decline from the level of 1.85% at the time of inclusion in early February 2022 and then 1%, so reviewing Egypt’s survival in the index has become dependent on returning to the original percentage.
It is noteworthy that the Egyptian government’s efforts to return to the index were crowned with success in February 2022, but after about a year and a half, JP Morgan placed the Egyptian bonds denominated in the pound and included in its emerging markets index on the negative review list.
The American bank explained at the time that Egypt’s eligibility to join its index would be under review for a period of 3 to 6 months, in light of the presence of obstacles to obtaining foreign currencies, and the continuation of this situation would result in its removal from the series of indicators affiliated with the index, which is what happened later.
Egypt was one of only two countries in the Middle East and Africa in the “JP Morgan” index, and it was considered at the time “a new testimony of confidence from foreign investors in the solidity of the Egyptian economy.”
The Egyptian Ministry of Finance said at the time that it had returned after 3 years of negotiations thanks to the fulfillment of the bank’s requirements, including extending the life of government debt, adjusting the yield curve, and raising the percentage of foreign investors’ participation in government financial instruments while increasing the size of each issue.
What did Egypt lose by leaving the index?
Economists who spoke to Al Jazeera Net believe that Egypt has already lost the confidence of not only investors, but also the majority of international financial institutions that gave it low ratings and grades that reflect the deteriorating economic situation that the country has been going through since February 2022.
Egypt has not commented on the decision to exit the index, as is customary so far, but remaining in the index would have given it the advantage of accessing the largest number of foreign investors in debt instruments, as it relies heavily on this large market, to provide the necessary financing for its basic needs of hard currency.
In turn, economist Abdel Khaleq Farouk, former director of the Nile Center for Economic and Strategic Studies, says, “Egypt’s exit from the index after years of struggling to return to it is a negative indicator of its inability to continue meeting the standards required to remain within the index, which provides it with an important entry into the debt markets.” .
Regarding what Egypt may lose, Farouk explained in his speech to Al Jazeera Net that the “JP Morgan” index is affiliated with an important institution and its decisions are taken, and therefore this means that it will be difficult for the Egyptian government in the coming period to access the borrowing markets and issue dollar bonds and others, which makes the task of obtaining loans difficult. It is new and the general economic situation in Egypt is difficult, because for 10 years the government has only relied on and been interested in borrowing.
If Egypt has benefited or will benefit from its presence in the index, Farouk explained that Egypt only benefits when it obtains a positive evaluation from that institution or other financial institutions such as Fitch, Moody’s, or Morgan Stanley, indicating that the “stable situation” evaluation gives it More space to access international markets.
International support for Egypt
The decision to exclude Egypt from the index – which would perpetuate a negative view of the Egyptian economy – came at a time when US Treasury Secretary Janet Yellen pledged to support Egypt’s economy, amid talks about increasing the International Monetary Fund’s loan to Cairo, amounting to $3 billion.
According to statements by Fund Director Kristalina Georgieva last November, the International Monetary Fund is considering increasing Egypt’s loan due to its suffering from the economic impact of Israel’s war on Gaza, which has been continuing for the fourth month in a row.
Great opportunity
For his part, the researcher in political economy, feasibility studies and development studies, Mustafa Youssef, described Egypt’s exclusion from the index as “a strong blow because this index enhances its ability to attract financing and makes it enjoy the confidence of international investors in government bonds. This entails a reduction in the value of interest and encourages the entry of direct investments that “It will create job opportunities, increase production, enhance exports, and reduce the cost of imports.”
Youssef said in statements to Al Jazeera Net that Egypt’s presence was an irreplaceable opportunity, and its exit is a very negative message to the world of finance and business, businessmen and foreign investors, and means that the Egyptian government’s steps for economic reform are not serious or real, and the only reform that is being done is reducing support and reducing the number of employees, This does not lead to real economic reform, according to him.
In his answer to the question: Why was Egypt unable to maintain its membership in the JP Morgan index? The economic researcher expressed his belief that the economic decision-making department has become dispersed and unable to manage the file in all its aspects.
He said, “Therefore, I left due to non-compliance with the standards for the index and the repeated complaints of investors and experts about the lack of provision of hard currency.”
He added, “About 3 months passed during which Egypt was unable to comply with these standards in light of its failure to comply with the conditions of the International Monetary Fund and allow the flexibility of the pound.”
The size of Egypt’s external debt jumped to a record level of approximately $165 billion, including about $29 billion due to 2024.
Under the weight of the scarcity of foreign exchange, the Central Bank of Egypt has reduced the value of the pound 3 times since early 2022, and the local currency has lost more than half of its value against the dollar at the official rate in local banks and more than 75% in the parallel market.
