The government revealed its intention to put up treasury bonds and bills worth EGP 342bn to finance the budget deficit during the fourth and last quarter of the fiscal year (FY) 2016/2017, according to a plan prepared by the Ministry of Finance in cooperation with the Central Bank of Egypt (CBE), which banks received a few days ago.
The Ministry of Finance plan indicated that the government aims to issue treasury bills worth EGP 321.5bn and treasury bonds worth EGP 20bn between April and the end of June.
Bonds and bills are issued through 15 banks participating in the primary dealers system in the primary market, according to an agreement between the government and banks since 2014. Also, these banks sell a portion of these bonds and bills in the secondary market to individual investors as well as to local and foreign institutions.
A prominent banker told Daily News Egypt that the government has to ease reliance on banks in covering the budget deficit. “It will be a vicious cycle, amid low state revenues,” he stressed.
He pointed out that the rise in the size of the budget deficit increases the risks of the state and lowers its credit rating, adding that it also negatively impacts the ratings of banks that cover these offerings.
Based on the plan, CBE—on behalf of the government—will offer EGP 105.5bn worth of treasury bills and bonds in April, followed by another offering worth EGP 131.25bn in May, then EGP 105.25bn in June.
The government aims to offer treasury bills maturing in 91 days worth EGP 82bn, as well as 182-day bills worth EGP 82bn; 273-day bills worth EGP 78.75bn; and 364-day bills worth EGP 78.75bn.
The plan also includes offering treasury bonds with a maturity period of three years, due in September 2019. This offering will be worth EGP 5bn, next to another three-year bonds offering due in June 2020 with a value of EGP 1.75bn.
In addition, the government is set to pose 5-year treasury bonds due in April 2022 worth EGP 2.25bn, another offering due after five years in May 2022 worth EGP 2bn, and another offering with a maturity of seven years to be due in August 2023 worth EGP 3bn. The government will also have another offering of seven years maturity period to be due in May 2024 worth EGP 2bn.
Finally, the government will put up 10-year bonds due in July 2026 worth EGP 1.5bn and another 10-year offering due in May 2027, worth EGP 3bn.
In FY 2015/2016, the government borrowed a total of over EGP 1.1tn through offering treasury bonds and bills.
There is a growing reliance on banks to finance state budget deficit, which is expected to reach EGP 320bn in the current FY.