Egypt cancels T-bonds bills for 3rd time in 2018

CAIRO – 18 September 2018: Egypt canceled bids to sell three- and seven-year bonds worth LE 3.5 billion for the third time this year, according to the Central Bank of Egypt.

In the beginning of this month, the Ministry of Finance cancelled t-bonds bills for the second time this year.

“The required return rates were not within logical limits and did not reflect the good economic and financial performance or the improvement of Egypt’s credit rating, but were affected by the risks associated with the emerging markets,” the ministry noted upon the second cancellation.

The statement added that the cancellation decision came to prevent the state treasury from carrying an unjustified service charge for a period of three to seven years.

The Central Bank of Egypt (CBE), on behalf of the Ministry of Finance, issued LE 3.5 billion in treasury bonds on Monday.

The T-bonds were offered in two installments, with the first valued at LE 1.5 billion with a seven-year term and the second at LE 2 billion with a three-year term.

Earlier in July, the ministry had to cancel bids to sell three- and eight-year bonds worth LE 3.5 billion as investors and banks demanded high interest rates.

Egypt targets average interest rates on the government’s debt instrument reaching 14.7 percent in the current budget, compared to an expected average of 18.5 percent in 2017/2018 budget.

Foreign investors’ investments in the Egyptian government’s debt instruments recorded $23.1 billion by the end of March 2018, up from about $20 billion in December.

Egypt needs to fund the 2018/2019 budget by LE 714.64 billion; LE 511.21 billion will be provided from domestic debt instrument and the rest will come from foreign financing through the issuance of bonds and the IMF loan.

In November 2016, the Executive Board of the IMF approved a $12 billion loan as financial assistance for Egypt’s implementation of an economic reform program.

Upon the board's approval in November, Egypt floated its currency, losing around 50 percent of its value under the economic reform program which imposed taxes, including the value-added tax (VAT), as well as cut energy subsidies, all with the aim of trimming the budget deficit.

The Central Bank of Egypt’s Monetary Policy Committee kept interest rates unchanged for the third time this year during August meeting, setting the overnight deposit rate and the overnight lending rate at 16.75 percent and 17.75 percent, respectively.

On March 29, the committee set the overnight rate and the overnight lending rate at 16.75 percent and 17.75 percent, respectively. In February, the committee lowered the interest rates by 1 percent for the first time since the flotation of the Egyptian currency in November 2016, after inflation rates slowed down.