The yields have been kept among the highest in emerging markets by a flood of new issuance which is offsetting foreign-investor demand for Egyptian debt.
According to Finance Ministry data from Egypt, compared with less than 1 billion pounds before a currency devaluation in November, oBottom of Form
ffshore investors boosted holdings of government Treasury bills to 79 billion pounds ($4.4 billion) as of April 4. According to data compiled by Bloomberg, since the beginning of March, government borrowing is already 18 percent over budget and is already 11 percent higher than the target this year.
Even as the cheaper pound attracts much-needed dollars from abroad, in Bloomberg Emerging Market Local Sovereign Index yields on Egyptian debt are the highest among 31 nations. And as Egypt faces a growing debt pile that is costing more to service as it tries to shield tens of millions of people living in poverty from inflation that has surged to more than 30 percent on an annual basis and a widening budget deficit that presents a dilemma for policy makers in Africa’s third-biggest economy.
“You cannot adopt inflationary reforms such as floating the currency and cutting subsidies while consolidating your budget at the same time,” said Hany Farahat, an economist at Cairo-based CI Capital Holding. Compared with the government’s target of 10.7 percent, the budget deficit to exceed 12 percent of gross domestic product this fiscal year, he expects. “There must be a trade-off.”
At average yields of more than 19 percent, last week, Egypt sold T-bills ranging in maturity from three months to one year. Noting a 51 percent weaker value than before the devaluation on Nov. 3, the pound traded at 18.1413 per dollar on Thursday.
Compared with less than 0.1 percent before the currency float, 3 percent of Egypt’s T-bills were held at the end of January by international funds, which had shunned the country’s debt securities in the years following the 2011 uprising that ended Hosni Mubarak three decades in power.
“High interest rates are a temporary side-effect, without which the pound float wouldn’t have achieved its purpose of attracting foreign capital,” Farahat said. “They’ve put Egyptian assets back on the investment map. So, for foreigners, it makes sense to rush to get a piece of the pie.”
On the issue of the increase in government borrowing, Samy Khallaf, the head of the Finance Ministry’s public debt division, declined to comment to inquiries from the media.
(Adapted from Bloomberg)