Egypt plans to sell $1 billion in five-year Eurobonds in 2011, backed by a US sovereign guarantee as part of the US aid package announced by President Obama on 19 May.
"We should tap the market quickly," said Finance Minister Samir Radwan."We need to diversify because the local market is squeezed." The Ministry of Finance has not yet hired banks to manage the sale, Radwan said.
Egypt’s budget deficit will range from 10 to 11 per cent of GDP in the fiscal year that ends June 2012, from a forecast 9.2 per cent this fiscal year ending June 2011, Radwan was earlier quoted as saying on the Ministry of Finance’s website.
A note from investment bank Beltone Financial explained that the US backed $1 billion Eurobond is part of what the US offered in its $2 billion aid package. During his speec, Obama said the US would guarantee loans of up to $1 billion through the Overseas Private Investment Corp (OPIC) for Egypt to finance infrastructure development and boost jobs.
"The domestic market has been saturated with T-bills since the onset of the political events, as the government attempts to finance its widening budget deficit. Many local banks have reached their limits in terms of T-bill holdings and yields on domestic T-bills have increased significantly,” said Beltone.
“Therefore, the Ministry of Finance is tapping the international bond market through the issuance of the $1 billion Eurobond. However, the Ministry could not have done that without the US sovereign guarantee, to limit shooting yields, and also to encourage lenders to buy the bond amidst perceptions of increased risk."
The government needs $12 billion for its 2011-12 budget, and it has, so far, secured $8.2 billion through bilateral and multilateral loans.
Egypt is also in negotiations with the International Monetary Fund (IMF) for over $4 billion "which will close its budget financing gap provided there are no more unforeseen expenditure items during the year," says Beltone.