Cairo: Egypt is ramping up domestic bond sales to a record this quarter as borrowing costs slide, threatening to widen one of the Middle East’s highest budget deficits.
The North African nation plans to sell 281.5 billion Egyptian pounds (Dh132.23 billion; $36 billion) of treasury bills and bonds in the last three months of 2015, about a third more than the same period last year, according to data posted on the Finance Ministry’s website this week. The average yield on 12-month treasury notes has fallen 40 basis points so far this year.
Egypt relies on domestic debt sales to fund its budget deficit, which is projected to have topped 11 per cent of gross domestic product in the fiscal year that ended in June. Borrowing costs fell after local banks, which own almost 80 per cent of outstanding treasury bills, bought more Treasury notes to utilise their deposits as lending to the private sector remains subdued. The government has been struggling to curb inflation near 10 per cent, cut the deficit and reinvigorate foreign investments.
“It’s difficult for the push for fiscal reform to gain traction when it’s possible to borrow on this scale from domestic sources,” Simon Williams, HSBC Holdings Plc’s chief economist for central and eastern Europe, the Middle East and North Africa, said from London. The increase in debt sales “reflects the rolling-over of paper that has been issued, plus new borrowing to fund the budget deficit. It all raises inflationary pressures and rollover risk in the medium-to-long term,” he said.
The average yield on one-year treasury bills fell to 11.54 per cent at the most recent government auction last week, having risen as high as 15.98 per cent after a revolution in 2011 forced Hosni Mubarak from office. The yield on the eve of the uprising was 10.6 per cent.
— Bloomberg
