Egypt launches new ‘high interest’ dollar savings certificate

Leading state banks in Egypt, Banque Misr and the National Bank of Egypt recently introduced two new types of dollar-denominated savings certificates, with returns to be paid on a monthly, quarterly, or annual basis.

Quick facts

• These certificates are valid for three years and available to Egyptian nationals or foreigners with a minimum deposit of $1000.
• The banks offer returns of either 9% per annum to be paid upfront in Egyptian pounds, or a 7% annual rate to be paid quarterly in dollars.
• Amidst a national foreign currency deficit, Egypt is seeking funds to resolve a backlog of demands from importers and businesses.
• The North African country also seeks to ease pressure on the Egyptian pound, which is currently trading at around 38 per $1 in the black market, a significant premium over the 30.9 it trades at in banks.

Back story

• Egypt’s central bank devalued the pound more than twice in March 2022, to secure a $3 billion deal with the International Monetary Fund (IMF).
• Inflationary pressure due to the Russian-Ukraine conflict heavily affected the country’s foreign reserves, pushing the state-owned banks to offer high-interest savings certificates.
• Compared to the interest rates the new certificates offer, the average return rate for fixed savings in Egypt currently stands at 12%. This is an unattractive savings option for citizens due to the hiking inflation rate, which rose to 36% in July 2023.

The tilt

• Burdened by FX shortfalls, African countries have been looking for innovative ways to attract foreign investors with high yields. However, those mouth-watering returns tend to come at with a considerable amount of risk.
• For example, in Ghana, the government issued international bonds to investors, promising high yields. However, the results fell short of expectations.
• In November 2023, Ghana asked holders of its international bonds to accept losses of as much as 30% on the principal and forgo some interest payments, as it sought a debt-sustainable restructuring plan to qualify for a loan from the IMF.
• As Ghana’s economic challenges have had a negative impact on its capital market, Egypt's government may also struggle to repay investors if its economic woes do not improve.