The government plans to borrow EGP 371bn to finance the deficit of the state general budget during the first quarter (Q1) of the new fiscal year (FY) 2017/2018, according to a plan prepared by the Ministry of Finance in coordination with the Central Bank of Egypt (CBE) and sent to a number of banks last week.
This is considered the largest offering ever since the government began borrowing through banks to finance the budget deficit in the early 1990s.
Daily News Egypt was able to obtain the plan of the Ministry of Finance, which reveals the government’s intent to offer treasury bills (T-bills) worth EGP 349.5bn and treasury bonds (T-bonds) worth EGP 21.5bn during the period from the beginning of July until the end of September 2017.
The CBE, which is carrying out the task on behalf of the government, will issue T-bills and bonds worth EGP 110.75bn in July, next to another offering worth EGP 151.5bn in August and other tenders worth EGP 108.75bn in September.
According to the plan prepared by the Ministry of Finance, the offerings will include bills with a maturity period of 91 days worth EGP 84bn, 182-day bills worth EGP 84.5bn, 273-day bills worth EGP 90.5bn, and 364-day bills worth EGP 90.5bn.
The plan also includes the issuance of 3-year bonds due by June 2020 worth EGP 6.25bn, and other bonds for 5 years due by May 2022 worth EGP 5.25 bn.
The government will also offer 7-year bonds during the period between July and September due by May 2024 with a value of EGP 4.75bn and 10-year bonds due by May 2027 worth EGP 5.25bn.
The government is offering treasury bills and bonds in the market through 15 banks participating in the “main dealers” system. These banks then re-offer part of these bills and bonds to their customers, from individuals and local and foreign institutions.
The list includes the National Bank of Egypt, Banque Misr, Banque du Caire, Commercial International Bank, Citibank, HSBC Bank-Egypt, Misr Iran Development bank, QNB ALAHLI, Credit Agricole Egypt, Barclays Bank Egypt (Attijariwafa Bank), Arab African International Bank, Egyptian Export Development, Suez Canal Bank, and the Arab Bank.
During the previous fiscal year 2016/2017, the government issued bonds worth EGP 1.2tn, including EGP 306bn in the first quarter of the year (June-August 2016), EGP 257bn in the second quarter of (September-October) 2016, and EGP 299bn in the third quarter (January- March 2017), and about EGP 342bn in the fourth quarter between April and June 2017.
According to the Central Bank of Egypt, the outstanding balances of treasury bills and bonds until the end of April 2017 amounted to about EGP 1.472tn, of which about EGP 782.087bn are bills and EGP 690.07bn are bonds.
According to an official at a state bank, the financial plan revealed the Finance Ministry’s intention to scale down its long-term debt instruments significantly over the coming period and focus more on the introduction of short-term instruments.
He also explained that the Ministry of Finance resorted to this strategy so as not to bear high interest on the long-term bonds, especially after the return on debt instruments hiked to record highs since the decision to float the pound and raise the CBE’s main interest rate by 5% twice, on 3 November 2016 and 21 May 2017.
According to the Ministry of Finance, the average interest rate on the latest 91-day T-bills was 20.375%, against 20.413% for 182-day bills, 20.662% for 266 days, and 20.39% for 346 days.
The average yield on 3-year bonds was 18.271%, against 18.349% for 5-year bonds, 18.38% for 7-year bonds, and 18.346% for 10-year bonds.
The government is suffering from a chronic deficit in the state general budget and is expected to reach EGP 370bn by the end of fiscal year 2017/2018, according to a government statement.