Egypt, rocked by the worst political turmoil in three decades, paid the highest yield in more than two years on its six-month treasury bills today as it struggles to finance a budget deficit and rebuild its economy.
The Ministry of Finance raised 3.5 billion Egyptian pounds ($595 million) at the auction. The average yield rose 30 basis points to 11.78 percent, the highest since January 2009, from 11.5 percent at the sale on Feb. 7. The ministry said earlier today it had scrapped plans to raise 4.5 billion pounds in bonds next week and decided to increase its offering of treasury bills by the same amount.
“The auction fared reasonably well in the wake of the ongoing turmoil in Egypt,” said Dubai-based Rawad Hakme co- manager of fixed income allocation for the Middle East and North Africa at EFG-Hermes U.A.E. Ltd. “While funding cost clearly increased, it did so only marginally owing to the significant supply coming to the market.”
Unprecedented protests to unseat President Hosni Mubarak, in power since 1981, have led to the death of about 300 people, according to United Nations estimates. The finance ministry said the economy is likely to miss its growth target of about 6 percent in the current fiscal year ending in June and the budget deficit may “deviate” from its target of 7.9 percent of gross domestic product.
The ministry plans to sell a combined 6.5 billion pounds of 91-day bills and 266-day bills on Feb. 13, according to central bank data on Bloomberg. That brings the total sale today and early next week to 10 billion pounds. It had initially planned to sell 5.5 billion pounds in bills.
Currency Intervention
“Because of current events, we have canceled the Monday issuance of bonds,” Samy Khallaf, adviser to Finance Minister Samir Radwan for public debt management, said in an interview from Cairo today. He declined to elaborate.
Demonstrations aimed at ending Mubarak’s rule pushed the yields on local Treasury bills to the highest level in two years and weakened the currency. The central bank’s purchases of pounds this week has helped currency markets return to an “orderly” state, Deputy Central Bank Governor Hisham Ramez said yesterday.
The Egyptian pound strengthened from a six-year low this week after the central bank intervened to slow declines. The currency was little changed at 5.8805 against the U.S. dollar as of 4:55 p.m. in Cairo.
Rising Yields
The yield on the 5.75 percent dollar bond maturing in April 2020 advanced 9.6 basis points to 6.69 percent, the highest since Jan. 31, according to Bloomberg composite prices. The cost of insuring the nation’s sovereign debt rose for a second day, with credit-default swaps increasing 5 basis points to 360, according to CMA prices. Egypt’s stock exchange shut Jan. 27 after losing 16 percent that week as protests intensified.
Protests that began Jan. 25, inspired by an uprising that ousted Tunisian President Zine El Abidine Ben Ali on Jan. 14, have left about 300 people dead, according to United Nations estimates. Egypt’s foreign minister Ahmed Aboul Gheit said in comments to Al Arabiya television aired this morning that it will take four months to change the country’s constitution after the administration of U.S. President Barack Obama criticized Mubarak’s government for not sufficiently addressing the demands of protesters.
Opposition leaders, including Mohamed ElBaradei, the former head of the U.N. nuclear agency, want the constitution changed to ease rules that make it hard for independent candidates to run for president.
Raising Funds
Spending may push Egypt’s deficit into “double digits” in 2011 from 8.1 percent in the fiscal year that ended in June, Standard & Poor’s said on Feb. 1. Egypt’s transition government, led by Vice President Omar Suleiman, has promised higher wages for government workers and unemployment benefits to those who lost jobs in the past two weeks in an effort to placate protesters.
The finance ministry said the government’s “budget financing is unlikely to face bottlenecks” because banks have funds, according to a statement on its website. The government will need additional spending to “meet higher international food and energy prices, ad-hoc measures in light of the recent unrest, and accelerated wage increase,” the ministry said today.
Rebuilding Economy
The U.N. FAO Food Price index has jumped 37 percent since May and touched a record last month, the same increase as in the year to July 2008, when the rise in prices sparked protests in countries including Egypt.
“The government needs the money to rebuild the economy,” Mona Mansour, a director at the research department of CI Capital, an Egyptian investment bank, said today. Egypt will need to fund the planned 15 percent increase in wages and pensions announced by the finance minister, she said.
Inflation accelerated to an annual rate of 10.8 percent in January from 10.3 percent in the previous month, the state-run Central Agency for Public Mobilization and Statistics, said on its website today.
Tags:Economy of Egypt, 2011 Egyptian protests, History of Egypt, Cairo,Hosni Mubarak , Zine El Abidine Ben Ali, Politics of Egypt, Egypt
(source:bloomberg.com)
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