Government plans to borrow EGP 324.5bn in Q2 of FY 2016/2017

Launch of treasury bills tenders for EGP 300.25bn, bonds worth EGP 24.25bn in last three months of year

The government has revealed its plan to borrow EGP 324.5bn to finance the budget deficit during the second quarter (Q2) of fiscal year (FY) 2016/2017, according to a strategy by the Ministry of Finance in coordination with the Central Bank of Egypt (CBE), which banks received a few days ago.
The main goal is for the government to issue treasury bills worth EGP 300.25bn, and treasury bonds worth EGP 24.25bn from October to December.
The CBE, which is responsible for the mission on the government's behalf, is to launch tenders for treasury bills and bonds worth EGP 99bn in October, other tenders worth EGP 124.25bn in November, and more tenders worth EGP 101.25bn in December.
According to the plan, the treasury bills launched for a 91-day term will be worth EGP 73.25bn, while bills launched for a 182-day term will be worth EGP 71.5bn. Bills for a 273-day term are worth EGP 74.5bn, and those for a 364-day term are worth EGP 81bn.
The government's plan also includes launching zero coupon bonds for a 18-month term worth EGP 1.75bn, and bonds for a three-year term due in September 2019 worth EGP 7.5bn, in addition to other three-year term bonds due in December 2019 worth EGP 3bn.
The government will also launch bills worth EGP 6.5bn for a five-year term, due in August 2021; other bonds worth EGP 3.5bn for a seven-year term due in August 2023; in addition to bonds for a 10-year term, due in July 2026, worth EGP 2bn.
The government borrowed EGP 317.5bn during Q1 of FY 2016/2017.
During FY 2015/2016, the government borrowed more than EGP 1.1tr through treasury bonds and bills, according to numbers obtained by Daily News Egypt.
The government's dependence on banks working in the local market is increasing month by month, in order to cover the state's deficit—expected to reach EGP 319bn in FY 2016/2017.
According to a system agreed upon by governments and banks in 2004 under the name "principal traders", the government launches treasury bonds and bills in the local market through 15 banks that participate in this system. These banks re-launch part of these bonds and bills to their clients, including individuals and local and foreign institutions.
These banks include the National Bank of Egypt (NBE), Banque Misr, Banque du Caire, the Commercial International Bank (CIB), City Bank, HSBC–Egypt, Misr Iran Development Bank (MIDB), Qatar National Bank (QNB), Credit Agricole–Egypt, Barclays–Egypt, Alexandria Bank, Arab African International Bank (AAIB), Export Development Bank of Egypt (EDBE), Suez Canal Bank, and the Arab Bank–Egypt.
According to Ezz El-Din Hassanein, chair of one of the banks working in the local market, and the economic and banking expert, said that the state's budget deficit and resorting to borrowing whether locally or from abroad will never end, especially as the state's income is low and insufficient. These revenues are not expected to increase on the short-term in a way that contributes to reducing the deficit.
The expected deficit, according to the FY 2016/2017 budget, will reach EGP 330bn—representing nearly 10% of the gross domestic product (GDP).
"This deficit heightens the state's risks and lowers its credit rating, and the rating of banks that contribute to reducing the deficit. This sends a negative message to the international community and investors, warning them against the high risks of operating in the state," said Hassanein.
The international global index of the state's deficit is nearly 3% of the GDP.
"The balance of debt interests is nearly EGP 293bn, representing 30% of the government's total annual spending due to the increase of the government's borrowing," Hassanein added.