Egypt to borrow a record $28 billion from local market

Egypt is set to issue 25 per cent more domestic debt in the coming quarter, with treasury bills making up the majority of planned borrowing.Egypt’s domestic debt sales will grow by an annual 25 per cent to a record LE170 billion in the second quarter of the 2011/12 financial year, the Ministry of Finance’s domestic debt issuance calendar shows.Short-term debt will constitute the majority of planned borrowing, at LE146.5bn in treasury bills to be bought back after one year or less.The Finance Ministry will also sell LE23.5bn in treasury bonds with 3-year, 5-year and 7-year maturities.Egypt’s gross domestic debt reached LE967.2bn in June 2011. During the first quarter of the 2011-12 financial year, which ends in September, planned domestic issuance amounted to LE137.825bn.Beltone Financial, a leading Cairo based investment bank, said the growth in domestic treasury bill offers was worrying, citing the surge in yields which will put more pressure on Egypt’s budget deficit.Debt service already takes up more than 25 per cent of total expenditure and it is likely to grow as T-bill rates rise.Local banks have been squeezed by the government’s increasing appetite for debt, which has led them to demand increasingly higher yields. In an investor note, Beltone attributed the surge in yields to the drop in foreign participation, which is thought unlikely to return to previous levels before "more political clarity" is achieved.Average yield for one-year treasury bills climbed six basis points to 13.882 per cent, the highest level since November 2008, at an auction last week.In September, the Ministry of Finance cancelled a treasury bill and a treasury bond offering due to buyers demanding higher yields that the ministry was not willing to accept.Last week, finance minister Hazem El-Beblawy announced that talks are undergoing with Saudi Arabia and the UAE to buy Egyptian local debt in order ease the pressure on yields.Egypt in June turned down a $3 billion loan from the International Monetary Fund (IMF), after it had revised its budget deficit down from 11 per cent to 8.6 per cent of GDP.Beltone note indicated that multilateral or bilateral external financing is a better option at the moment due to lower interest rates.It added that external debt levels in Egypt, which stood at $34.8bn in March 2011, are not alarming and could be expanded.Egypt had been promised billions of dollars in loans and aid funds from the United States, European Investment Bank as well as other international bodies. Clear records monitoring the progress of these funds have not been made available by Egypt's cabinet.