By Farah Atia
Egypt, which is grappling with the Middle East’s biggest budget deficit, will issue the second tranche of the $3bn international bonds targeting Qatar in early July, after the interest on the 3-year debt was pulled down to 3% from 3.5%.
“The lower interest rate on the second tranche of funding can be seen as successful negotiating from Egypt and also reflects Qatar’s commitment to support the nation in its dire straits,” Youssef Kamel, Associate at Rasmala Egypt Asset Management.
The bond purchase is a way of supporting Egypt’s budget deficit, which rose to EGP 184.8bn in the period from July to April of the 2012/ 2013 fiscal year, compared to EGP 117.8bn in the same period last year. This was largely due the rise in fiscal expenditures at a much higher rate than the growth in fiscal revenues, according to the Ministry of Finance’s May bulletin.
The $3bn sum was originally borrowed from Qatar in May and will be converted into three-year bonds as soon as necessary measures are completed. Egypt has already converted $2.5bn borrowed in December into 18-month notes, currently listed on the Irish stock market at an interest rate of 4.25%. Additionally, $200mn in Egyptian government bonds that Banque Misr and the National Bank of Egypt (NBE) subscribed to are also listed on the Irish stock exchange, bringing the Irish market’s total Egyptian bonds to $2.7bn.
Egypt’s net foreign reserve levels were propelled by aid to $16.04bn end of May, according to the latest figures provided by the Central Bank, with the country receiving aid from a number of countries including Libya, Turkey and Qatar which had so far pledged about $8bn.
“The Qatari support provides much needed short term relief for the economy, as foreign reserves have reached critical levels and the government is struggling with its burgeoning budget deficit,’’ Kamel said.