The Egyptian government intends to borrow EGP 1.055trn from the local market during the third quarter (3Q) of fiscal year 2022/23, with the aim of financing the state budget deficit.
According to the government’s plan, the Ministry of Finance aims to issue 52 treasury bill tenders worth EGP 1.014trn and 30 bond tenders worth EGP 41.25bn from January to March 2023, which reflects the government’s need for liquidity in the short term.
The Central Bank, which undertakes this task on behalf of the government, will launch the T-bill and bond tenders worth EGP 404.25bn in January, EGP 325.75bn worth of tenders in February, and EGP 325.75bn worth of tenders in March.
According to the plan, the value and term of those T-bills will be as follows: EGP 172.5bn T-bills for 91 days, EGP 263.5bn for 182 days, EGP 276.5bn T-bills for 273 days, and EGP 302bn for 364 days.
It is also scheduled to offer “zero coupon” bonds for a year and a half at a value of EGP 16bn, 3-year bonds worth EGP 23bn, 5-year bonds worth EGP 1.5bn, and 7-year bonds worth EGP 750m.
The banks operating in the Egyptian market are the largest sectors investing in bonds and treasury bills that the government offers periodically to cover the state budget deficit.
These bonds and bills are offered through 15 banks that participate in the system of “primary dealers” in the “primary market”, and those banks resell part of them in the “secondary market”, to individual and local and foreign institutional investors.
The Ministry of Finance had revealed that the volume of outstanding balances of local treasury bills and bonds amounted to about EGP 4.3trn until the end of November 2022.
According to the latest report published by the ministry on its website, the volume of outstanding balances of treasury bills until the end of November amounted to about EGP 1.732trn, with about EGP 686.597bn for 364-day bills, about EGP 133.091bn for 273-day bills, and about EGP 357.024bn for 182-day bills, in addition to about EGP 555.501bn in 91-day bills.
According to the Ministry of Finance, the maturity date for these permits extends from 6 December 2022 to 28 November 2023, taking into account that other bills are re-offered with the same deadlines on a weekly, periodic basis.
This comes as the Ministry of Finance revealed that the volume of outstanding balances of treasury bonds at the end of September amounted to about EGP 2.568trn, of which about EGP 280.501bn were “zero coupon” bonds.
According to Finance, the maturity date for these bonds extends from 1 November 2022 to 18 January 2037, also taking into account that other bonds are re-bid on a weekly, periodic basis, just like the bills.
Mohamed Maait, Minister of Finance, had indicated in his recent statements that the government aims in FY 2022/2023 to achieve a first surplus of EGP 132bn, or 1.5%, reduce the total deficit to 6.1% of GDP, and put the debt rate on a downward path to reach less than 75% of GDP over the next four years, and it also aims to reduce the debt rate to 84% of GDP, and reduce the debt service ratio to 7.6% of GDP and 33.3% of budget expenditures, along with diversification efforts in funding sources to reduce the cost of development and extend the life of the debt.
The Ministry of Finance had continued to reduce acceptable bids in treasury bills and bonds, with the interest rates in the offers submitted to it higher than the target return, after the Central Bank of Egypt raised its interest by 3% at once on 26 December 2022.
During the month of December, the total value of bids for bills and bonds together amounted to EGP 247bn, of which EGP 181.8bn were accepted by the Ministry of Finance.
Central Bank data on its website revealed that the Ministry of Finance accepted about EGP 63m during a treasury bonds tender that it offered last Monday, against EGP 7.5bn that it requested, despite receiving EGP 5.9bn worth of offers to cover this tender, but the accepted interest was 18%, compared to an average of 22.85. %, and there is a request of 28%.
The reduction in demand for treasury bills also affected, as the ministry accepted only EGP 398m out of the EGP 30bn it requested in the bills bids it launched last week, in an attempt to control the cost of government debt, which accounts for about a third of government spending.
During last December, in total, the Ministry of Finance offered bids for bills and bonds worth EGP 217bn, and approved offers worth EGP 181.4bn, representing about 83.6% of the accepted bids.
The ministry tended to rely on short-term bills within a period of 91 days, it accepted about EGP 63.6bn, which is twice the required value of EGP 31bn. It also accepted offers for 182-day bills amounting to about EGP 48.8bn, compared to the required EGP 19bn.
However, bid acceptance rates were lower for the 273 term, amounting to EGP 20.3bn, compared to EGP 81bn and for the 364-day term, amounting to EGP 48.7bn, compared to the required EGP 86bn.
Since the beginning of FY 2022/23, the Ministry of Finance has offered 91-day treasury bills at a value of EGP 303bn, while it accepted EGP 956.8bn. For a period of 182 days, the ministry offered EGP 286.5bn and accepted EGP 352bn, and for a period of 273 days, the ministry offered EGP 366bn and accepted EGP 96.1bn, while for a period of 364 days the ministry offered EGP 514bn and accepted EGP 364.5b.
Thus, the Ministry of Finance has issued tenders for bills and treasury bonds worth EGP 1.4695trn from the beginning of the current fiscal year in July 2022 until the end of last December, and accepted EGP 1.7695trn, an increase of EGP 300bn over what is required.