CAIRO - Egypt's dependence on local borrowing to support the state budget is not sustainable and it will have to borrow from overseas, a state newspaper quoted Finance Minister Hazem el-Beblawi as saying on Monday. Local banks are lending heavily to the government as it seeks funds to cover a ballooning budget since a popular uprising toppled President Hosni Mubarak in February, and treasury yields have risen steadily. "It was the norm that we borrowed from T-bills with rates within 9 to 10 per cent. Now they have reached 13 to 14.4 per cent and this is a very serious issue for the treasury and for the national economy," daily al-Ahram quoted Beblawi as saying. Egypt's economy was pummelled by the uprising, which prompted a sharp downturn in tourism and an exodus of foreign investors. Economists now see the Egyptian economy expanding by 1.3 per cent in the year ending next June, compared to a previous estimate, before the uprising, of around 6 percent growth. Beblawi, who has said that Egypt is reconsidering previously rejected support from the International Monetary Fund (IMF), said foreign borrowing was necessary to tackle the deficit. "If we don't get loans from international institutions how will we deal with the budget deficit?" Beblawi said, adding that the government did not oppose external borrowing, but did not specify what form of borrowing. Egypt forecasts a budget deficit of 8.6 per cent of gross domestic product in the financial year to June 2012 but economists say that is optimistic. Local borrowing has another serious flaw, according to Beblawi, as it directs most bank deposits to T-bill subscriptions, which drains credit from Egypt's economy. "T-bills teach banks how to become lazy and make them have huge profits without any efforts," he said. Beblawi, appointed in July by the military council which has been running Egypt since Mubarak's overthrow, has said he is in talks with Arab states for funds of close to $7 billion. His predecessor secured a loan from the IMF only to be forced to turn it down amid opposition from the army generals. Egypt's main economic problem now is a shortage of liquidity, according to Beblawi. But he said the country had seen worse in the 1980s when the budget deficit reached nearly 20 per cent, compared to less than 10 per cent now. "The problem of the deficit we have is big but it is not frightening," he said. Saudi Arabia announced that it would provide a package of funds worth $3.9 billion in budgetary support, loans and T-bills to Egypt, Al Arabiya TV quoted the Saudi ambassador to Cairo as saying on Sunday. The oil-rich Gulf state is set to provide $500 million in budgetary support, $500 million in easy loans and buy T-bills worth $500 million paid by Saudi Development Bank, ambassador Ahmed Abdel Aziz Qatan told the Saudi-owned satellite channel. Qatan said Saudi Arabia would deposit $1 billion at the Central Bank of Egypt. Yields at Egyptian government debt auctions reached their highest since the 2008 financial crisis last month and traders have said they could rise further if the government does not secure external funding.
