Tension between Egypt’s Islamists and seculars after President Mohammad Mursi’s power grab risks spurring borrowing costs and delaying aid vital to economic recovery, Barclays Plc. and Beltone Financial Holding said.
The Arab country will offer 12 billion Egyptian pounds ($2 billion) at auctions of treasury bills and bonds in the coming week, according to central bank data on Bloomberg. The mid-yield on one-year treasuries in the secondary market jumped 32 basis points, or 0.32 of a percentage point, since Nov. 25 to 13.56 percent Thursday, prices compiled by Bloomberg show.
Opposition to Mursi has grown since he issued a decree last week shielding his decisions from the judiciary, with tens of thousands rallying across the country Wednesday. The International Monetary Fund said its $4.8 billion loan to Egypt is contingent on there being “no major change in the economic outlook.” The European Union also warned it would cut aid if the decree wasn’t reversed, German daily Frankfurter Rundschau cited EU Parliament member Elmar Brok as saying.
“Markets are likely to put significant weight on the political risk associated with the current deadlock in Egypt given its implications for the future,” Alia Moubayed, London- based senior economist at Barclays Plc. said by phone Wednesday. IMF and EU statements “may resonate with the authorities and encourage them to find a solution as soon as possible.”
Egypt canceled a local bond sale this week for the first time in six months as yield demands increased. The average yield on nine-month treasury bills jumped 30 basis points to a six-week high of 13.19 percent at this week’s sale. The pound, subject to a managed float, weakened the most in a year following Mursi’s decree, losing as much as 0.3 percent on Nov. 26. It fell 0.1 percent to 6.1081 a dollar as of 4:16 p.m. Thursday.
Police clashed with protesters on the outskirts of Cairo’s Tahrir Square for a seventh day and the country’s Supreme Constitutional Court said it would not be “intimidated by threats,” referring to allegations by Mursi and the Muslim Brotherhood that its rulings are politically motivated. The country’s top appeals court suspended work until Mursi withdraws his decree, Middle East News Agency reported.
The president won’t rescind or change the order, his spokesman Yasser Ali said on Nov. 26. The edict also protects a constitution-writing panel, criticized by seculars as being biased toward Islamists, from court challenges. Activists have called for more demonstrations Nov. 30.
“In addition to the complications of a delay in aid disbursements on the economy, we believe another halt in economic activity will have dire consequences,” Cairo-based investment bank Beltone said in a research note Thursday. “We expect dollarization pressure to weaken the pound amid low levels of international reserves and an already-stretched balance of payments,” it added.
Egypt will offer a combined 5.5 billion pounds of six- and 12-month treasury bills Friday and 5 billion pounds of three- and nine-month notes on Dec. 2, according to central bank data. It will seek bids for three- and seven-year bonds valued at a combined 1.5 billion pounds on Dec. 3.