The government revealed its intention to borrow EGP 291.25bn to finance the budget deficit during the fourth quarter (Q4) of fiscal year (FY) 2015/2016.
This comes according to a plan prepared by the Ministry of Finance, in coordination with the Central Bank of Egypt (CBE), which was handed out to a number of banks operating in the local market last week.
The Ministry of Finance’s plan, a copy of which was obtained by Daily News Egypt, revealed that the government intends to auction treasury bills worth EGP 247bn, and EGP 44.25bn bonds between the beginning of April and the end of June 2016.
The government auctioned treasury bills tenders and bonds valued at EGP 263bn during Q1 of FY 2015/2016, compared to the EGP 281.5bn that will be auctioned in Q2, and the EGP 281.75bn in Q3.
The CBE, which auctions the treasury bills and bonds on behalf of the government, will auction treasury bills and bonds worth EGP 89.5bn April and worth EGP 112.25bn and EGP 89.5bn in May and June respectively.
According to the plan prepared by the Ministry of Finance, treasury bills worth EGP 58.5bn will be issued with a maturity period of 91 days are. Bills worth EGP 58.5bn will be issued with a maturity period of 182 days and bills worth EGP 65bn will be issued with a maturity period of 273 days are worth of, while bills with a maturity period of 364 days are valued at EGP 65bn.
The plan also offers zero-coupon bonds of 18 months worth EGP 5.25bn, three-year bonds that mature in October 2018 worth EGP 12bn, as well as three-year bonds worth EGP 6bn that will mature in June 2019.
The government will also offer five-year bonds worth EGP 3bn that mature in May 2020 and another set of five-year bonds worth EGP 15bn that mature in April 2021.
The plan revealed that the government will reduce the term of loans to five years at maximum, and will cancel the seven and 10-year bonds which were used during the last period.
The government aims, through this procedure, to ease the burden of the budget deficit, especially after the rise of bills and bonds’ yield as a result of the CBE’s decision to raise interest rates by 1.5% two weeks ago.
The yield of bills and bonds increased by almost 2% after the CBE’s decision, to reach 13.21-14.32% on average for the bills and 14.63-17% for the bonds.
According to an principal trading system designated between the government and banks since 2004, the government has been launching treasury bills and bonds to the domestic market via 15 banks, which then sell a portion of these bills and bonds to their customers from local and foreign individuals and institutions.
Those banks include the National Bank of Egypt (NBE), Banque Misr, Banque du Caire, Bank of Alexandria, Commercial International Bank (CIB), Arab African International Bank, Export Development Bank, QNB Alahli, Suez Canal Bank, Misr Iran Development Bank, Crédit Agricole, Citibank, Arab Bank, HSBC Bank, and Barclays Bank.
According to banking expert Ezz El-Din Hassanein, the government has resorted to borrowing from banks through bonds and treasury bills to obtain local financing for the state budget deficit at a lower yield than foreign loans, especially considering the difficulty of borrowing from foreign institutions.
The deficit in the state budget amounts to approximately EGP 251bn in the 2015/2016 budget, with a monthly deficit worth almost EGP 21bn, he added.