Egyptian government to depend less on local market in budget deficit finance

Hossam Mounir
5 Min Read

The Egyptian government intends to depend less on the local market in financing the state’s general budget deficit during the first quarter (Q1) of fiscal year (FY) 2021/22, according to documents obtained by Daily News Egypt.

The government aims to borrow only EGP 587bn from the local market through treasury bills (T-bills) and bonds during Q1 of FY 2021/22, compared to about EGP 600bn in Q1 of FY 2020/21, EGP 640bn in Q2, EGP 647.5bn in Q3, and EGP 644.5bn in Q4.

According to the government’s plan, the Ministry of Finance intends to issue 52 bids for T-bills worth EGP 410bn, and 48 bids for bonds worth EGP 177bn, during the period from July to September 2021.

The Central Bank of Egypt (CBE), which issues these bids on behalf of the government, will issue EGP 182.5bn bids in July, EGP 222bn bids in August, and EGP 182.5bn bids in September.

According to the plan, the government will make an EGP 192bn issuance which will mature in 364 days. Other issuances as follows: 91-day bills worth EGP 81bn, 182-day bills worth EGP 75bn, and 273-day bills worth EGP 62bn.

The Ministry has also intensified the offering of short-term bonds significantly during Q1 of FY 2021/22. It is scheduled to offer two-year bonds worth EGP 45bn, in addition to “Zero Coupon” bonds, for a period of one and a half years, at a value of EGP 29.5bn.

Moreover, the Ministry is scheduled to offer 3-year bonds worth EGP 18bn, 5-year bonds worth EGP 19.5bn, 7-year bonds worth EGP 13.5bn, 10-year bonds worth EGP 12.5bn, and 15-year bonds worth EGP 3bn.

Banks operating in the Egyptian market are the largest investors in T-bills and bonds, which the government regularly issues to finance the state’s general budget deficit.

These bonds and bills are offered through 15 banks that participate in the primary dealers system in the primary market. These banks resell part of them in the secondary market to individual investors and local and foreign institutions.

Earlier last week, CBE revealed that the volume of outstanding balances of T-bills only increased to about EGP 1.554trn in May 2021, compared to about EGP 1.533tn in April 2021, an increase of about EGP 21bn.

 According to the CBE, the investments of public sector banks in T-bills amounted to about EGP 252.291bn in May, compared to EGP 285.024bn in April. The investments of private sector banks in T-bills amounted to about EGP 344.790bn, compared to EGP 337.7bn.

The investments of specialized banks in this sector amounted to EGP 30.468bn during May, compared to EGP 31.562bn in April, while the investments of foreign bank branches in Egypt amounted to EGP 46.801bn in May 2021, compared to EGP 47.082bn in April.

According to CBE, the size of the domestic public debt amounted to about EGP 4.742trn in June 2020, representing about 81.5% of the gross domestic product (GDP), of which 87.8% is owed by the government, 6% is owed by public economic bodies, and 6.2% is owed by the National Investment Bank (NIB).

The net balance of domestic debt owed by the government amounted to about EGP 4.163trn, an increase of about EGP 432.8bn during FY 2019/20, while the net balance of public economic bodies amounted to EGP 286.4bn, an increase of EGP 3.5bn, and the net debt of NIB, minus the bank’s inter-debt of public economic bodies and the bank’s investments in government securities, reached about EGP 292.1bn, an increase of EGP 23.7bn.

Ahmed Kojak, Deputy Minister of Finance, revealed earlier that the ministry aims to reduce the total deficit in the state’s general budget to about 7.8-7.9% of GDP during FY 2020/21 and to 6.6% of GDP during 2021/22. The general debt will also reach about 89% of GDP by June 2021. The Ministry targets a primary surplus of 0.7-0.9% of GDP in 2020/21 and a surplus of 1.5% in 2021/22.

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