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Egypt seeks near-record debt sales to plug deficit

Egypt will seek to raise a near-record 205 billion Egyptian pounds ($29 billion) in domestic debt next quarter, the Finance Ministry said in a statement Wednesday, in an effort to finance the budget deficit.

Egypt sold 203 billion pounds of T-bills and bonds this quarter after raising a record 206.5 billion in the previous three months, according to the Finance Ministry. The country sold 158 billion pounds of debt in the second quarter last year.

“The question is always, ‘is there an appetite in the market for this debt?’ and right now the answer is yes,” Khalil al-Bawab, head of fixed income at Cairo-based EFG-Hermes Holding SAE, said by phone Wednesday. “Banks remain very liquid because deposits are rising and they’re not being offset by an increase in lending because investors keep shying away, awaiting a clear road map for political and economic progress.”

Egypt is increasing its reliance on local banks to help finance a budget deficit that Finance Minister Hany Kadry said March 12 may reach 12 percent of gross domestic product by June, up from an earlier 10 percent projection. Central bank holdings of government securities didn’t increase in the last five months of 2013 after almost doubling since the start of the country’s 2011 uprising, the most recent government data show.

The North African country, also seeking to lower its reliance on short-term debt, will sell 30 percent of the notes in the form of bonds that mature in more than a year, according to the statement posted on the ministry website. Egypt has about 154 billion pounds of maturing domestic debt next quarter, according to data compiled by Bloomberg.

The Finance Ministry expects the average maturity of outstanding domestic debt to reach 1.8 years by the end of June, compared with 1.7 years now and 1.3 years at the end of 2012, according to the statement.

Borrowing costs have tumbled since the military ousted Islamist President Mohammad Morsi in July and the central bank reduced interest rates three times in the second half of the year to boost the economy. The one-year yield fell to 10.75 percent at the most recent auction last week, compared with 15.41 percent at the end of June.

The pound weakened for the first time in more than two months at a regular central bank currency auction, depreciating less than 0.1 percent to 6.9525 a dollar, according to the weighted average price reported by the regulator. The local currency traded at 7.415 a dollar Tuesday in the black market, according to a Bloomberg News survey. That represented a 6.7 percent premium, the most in three months, to buy dollars over the official interbank rate.

The yield on the government’s $1 billion of 5.75 percent Eurobonds due in April 2020 retreated three basis points, or 0.03 of a percentage point, to 5.32 percent, according to prices compiled by Bloomberg.

 
A version of this article appeared in the print edition of The Daily Star on March 27, 2014, on page 5.

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Summary

Egypt will seek to raise a near-record 205 billion Egyptian pounds ($29 billion) in domestic debt next quarter, the Finance Ministry said in a statement Wednesday, in an effort to finance the budget deficit.

Egypt sold 203 billion pounds of T-bills and bonds this quarter after raising a record 206.5 billion in the previous three months, according to the Finance Ministry. The country sold 158 billion pounds of debt in the second quarter last year.

The Finance Ministry expects the average maturity of outstanding domestic debt to reach 1.8 years by the end of June, compared with 1.7 years now and 1.3 years at the end of 2012, according to the statement.


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