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Egypt Addresses Debt to Foreign Oil Companies

Bottom Line: Desperate for foreign oil companies to continue investing, Egypt is now trying to restructure $5.4 billion in debt it owes to them before it affects the $8.5 billion they are expected to invest in exploration and development for this fiscal year, which ends June 2014.

Analysis: Last week, Egyptian officials began putting plans together to negotiate new terms and a repayment schedule with foreign oil companies for all or part of $5.4 billion in outstanding payments. At this point it remains unclear if the entire amount is being restructured, or just a portion—but what we do know is that one of the options is to allow foreign companies to boost crude and condensate output and export the increase as partial repayment. This comes along with plans for a new economic stimulus package that is cause for some optimism. The new stimulus package calls for $3.2 billion in new investment projects over the next 12 months. This is a positive development if indeed this money is spent on investment rather than on new subsidies. The new investment projects will focus on key infrastructure and utilities, which could be a much-needed boom for the construction sector, and this has significant tie-ins to other sectors and to the labor market. The goal over the next 10-12 months is to boost GDP to 3.5% (currently at 2%) and to reduce the budget deficit to 9% (currently at 14%).

Recommendation: While a restructuring of debt to foreign oil companies is long overdue,…

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