Cairo — Less than three months after being placed on a negative review list, JPMorgan Chase, an American bank, has decided to exclude Egypt from its Emerging Market Bond Index effective January 31st.
It seems that the Egyptian government has failed to correct its stance to maintain its inclusion in the index, which it had strived to rejoin in early 2022 after being removed in the aftermath of the January 25th, 2011 revolution due to economic difficulties.
JPMorgan, the largest bank in the United States, attributed this move to the fact that Egypt had been under index surveillance since September 21st, 2023 because investors were unable to convert money into hard currency for withdrawal.
A Swift Exit After a Long Absence
Additionally, Egypt's weighting in the global index dropped to 0.61% by the end of last year, with the country holding 13 Egyptian pound-denominated bonds in the index with maturities ranging between 2024 and 2030.
The decline in relative weight in the index continued from a level of 1.85% at the time of listing in February 2022, then to 1%, making Egypt's continued presence on the index contingent on a return to the original rate.
Interestingly, the Egyptian government's efforts to return to the index were successful in February 2022, but about a year and a half later, JPMorgan Chase put Egyptian pound-denominated bonds listed in its Emerging Market index on negative review.
The American bank then explained that Egypt's eligibility for inclusion in its index would be under review for a period of 3 to 6 months, in light of obstacles to obtaining foreign currencies. If this situation continued, it would result in their removal from the index series, which eventually occurred.
Egypt was one of only two countries from the Middle East and Africa on JPMorgan's index, which at the time was seen as "a new vote of confidence from foreign investors in the solidity of the Egyptian economy."
The Egyptian Ministry of Finance stated that it had returned after three years of negotiations thanks to fulfilling the bank's requirements, such as extending the life of public debt, adjusting the yield curve, and increasing the participation of foreign investors in government financial instruments, along with increasing the size of each issue.
What Egypt Lost by Exiting the Index?
Economic experts who spoke to Al Jazeera Net believe that Egypt has indeed lost the confidence of not only investors but also the majority of the international financial institutions, which gave it lower ratings reflecting the dire economic situation the country has been facing since February 2022.
Egypt has not yet commented on the decision to exit the index, which was customary until now. However, remaining in the index would have given it the advantage of access to the largest number of foreign investors in debt instruments, relying heavily on this large market to provide the necessary hard currency funding for its basic needs.
Abdel Khalek Farouk, former Director of the Nile Center for Economic and Strategic Studies, stated, "Egypt's exit from the index after years of struggling to return is a negative indicator of its inability to continue meeting the required standards to remain within the index, which provides it with an important gateway to debt markets."
Regarding what Egypt might lose, Farouk highlighted that the JPMorgan index is part of a significant institution whose decisions are heeded; hence, this implies difficulty for the Egyptian government to access borrowing markets, issue dollar bonds, etc., in the future. This further complicates the quest for new loans and aggravates the general economic situation in Egypt, as for the past ten years the government has been focusing and relying on borrowing alone.
Farouk noted that Egypt benefits only when it receives a positive assessment from such financial institutions, asserting that a "stable status" evaluation allows greater access to international markets.
International Support for Egypt
The decision to exclude Egypt from the index – which is likely to entrench the negative outlook on the Egyptian economy – comes at a time when U.S. Treasury Secretary Janet Yellen pledged support for Egypt's economy amid talks about increasing the International Monetary Fund's (IMF) loan to Cairo, which currently stands at $3 billion.
According to statements by IMF Managing Director Kristalina Georgieva in November, IMF is considering increasing Egypt's loan due to the economic impact of the ongoing Israel-Gaza conflict, which has now entered its fourth continuous month.
An Irreplaceable Opportunity
Mustafa Yousif, a researcher in political economy and feasibility studies, described Egypt's exclusion from the index as a "strong blow because this index enhances its ability to attract financing, making it enjoy the confidence of international investors in government bonds, leading to lower interest values and encouraging direct investments that create job opportunities, increase production, boost exports, and lower the cost of imports."
Yousif, in his statements to Al Jazeera Net, regarded Egypt's presence as an irreplaceable opportunity, stating that its exit is a decidedly negative message to the world of finance and business, as well as to businessmen and foreign investors, indicating that the Egyptian government's steps towards economic reform are neither serious nor genuine. He emphasized that the only reform is reducing subsidies and the number of employees, which does not lead to true economic reform, according to him.
In response to why Egypt failed to maintain its place in the JPMorgan index, Yousif believed that the economic decision-making circle had become scattered and unable to manage the portfolio comprehensively.
He stated, "Egypt was excluded due to non-compliance with the index's standards and repeated complaints of investors and experts about the unavailability of hard currency."
Furthermore, Yousif added that nearly three months passed without Egypt meeting these criteria amid its lack of responsiveness to the IMF's conditions for allowing more flexibility in the Egyptian pound's value.
Egypt's external debt surged to a record level of approximately $165 billion, with about $29 billion due in the year 2024.
Under the pressure of foreign currency scarcity, the Central Bank of Egypt devalued the Egyptian pound three times since early 2022. Since then, the local currency has lost more than half its value against the U.S. dollar in the official exchange rate at local banks and more than 75% in the parallel market.
