Figures obtained by Daily News Egypt indicated the government’s intention to expand the process of borrowing from the domestic market to fill the chronic deficit in the state budget significantly during the first quarter of 2018, which is the third quarter of the fiscal year 2017/2018.
According to those figures, the Ministry of Finance intends to offer bids for treasury bills (T-bills) and treasury bonds worth EGP 415bn between January and March this year, making it the largest borrowing rate through debt instruments in Egyptian history.
The state suffers from a deficit in the general budget estimated at about EGP 370bn in FY 2017/2018, according to a previous statement by Finance Minister Amr El-Garhy.
A plan by the Ministry of Finance, obtained by Daily News Egypt, reveals that the government is targeting issuing treasury bills worth EGP 384bn and treasury bonds worth EGP 31bn.
The Central Bank of Egypt (CBE), which is carrying out the task on behalf of the government, is offering bids on T-bills and bonds worth EGP 152.75bn in January, EGP 132.5bn in February, and EGP 129.75bn in March.
According to the plan, it is planned to issue treasury bills for 91 days worth EGP 89.5bn, bills for 182 days at the same value, bills for 273 days worth EGP 102.5bn, and bills for 364 days at the same value.
The government’s plan also includes the issuance of three-year bonds due in December 2020 worth EGP 7.25bn, another set of three-year bonds due in March 2021 worth EGP 1.5bn, five-year bonds due in October 2022 worth EGP 2.5bn, and five-year bonds due in January 2023 worth EGP 6.5bn.
The government will also issue bonds of seven-year maturity due in September 2024 worth EGP 3bn, seven-year bonds due in November 2025 worth EGP 3.25bn, and 10-year bonds due in November 2027 worth EGP 7bn.
It is noteworthy that the government had borrowed about EGP 1.336tn through treasury bills and bonds in 2017.
The government borrowed EGP 299.019bn between January and March 2017, EGP 342bn between April and June, EGP 306.08bn between July and September, and EGP 389.25bn between October
According to CBE, the outstanding balances from treasury bonds in local currency owed by the government reached EGP 1.71tn, including EGP 1031.701bn of bills and EGP 677.587bn of bonds.
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 local and foreign institutions.
Hany Aboul Fotouh, a banking expert, said that the CBE’s figures show that the government is the largest borrower from banks.
He added that the government is contending with the rest of the economic sectors to get money from banks, where banks consider them a low risk borrower because the loans are guaranteed by the state and therefore prefer the government to sectors that need financing and support, such as the agricultural sector, which has little share of the credit.
Aboul Fotouh noted that the government is borrowing mainly to bridge the budget deficit, while lending other sectors often leads to the financing of investments and projects, resulting in job creation and thus reducing unemployment and improving living conditions in a healthy market.
He called upon the reconsideration of lending the government on the expense of other sectors to keep them from harm.
According to a senior banker, speaking to the Daily News Egypt, banks do not go to invest in government debt instruments in order to benefit from this diversity of investment, or to invest in the use of their funds, but they are forced to do so because there are no other forms of funds employment to absorb the amount of liquidity available to them.
He added that the cost of deposits in banks is very high and it is necessary to look for the employment of these deposits so that banks can cover this cost. In the absence of a large demand for borrowing, investment in debt instruments remains the best alternative.