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Egypt govt issues $2bn-bonds to reimburse pensions fund

Ministry of finance admits part of the debt resulting from state borrowing of pension and insurance funds

Bassem Abo Alabass, Tuesday 5 Nov 2013
Interim Finance Minister, Ahmed Galal
Interim Finance Minister, Ahmed Galal (Photo: Ahram)
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Egypt’s ministry of finance has issued two governmental bonds worth LE14.2 billion (roughly $2 billion) to pay off part of the treasury's debt to two Egyptian insurance funds, one for public employees and the other for those working in the private sector.

The decision, announced on Monday, aims to decode the financial overlaps between the state’s treasury and pension and insurance funds.

Finance Minister Ahmed Galal decided to raise the interest on the second tranche of its debts to the funds to nine percent, compared to eight percent previously. This will enable the annual revenues of the funds to reach LE1.3 billion (roughly $0.19 billion) in order to provide the necessary liquidity to pay pensioners.

According to a statement by the finance ministry, the increasing yield will assist the funds in reaching the promised ten percent rise in pensions as of January 2014.

The monies of public and private pensions and insurance funds, which are by law private, have burdened the public coffers since the government established the National Investment Bank - a state bank managing public investments – in order to meet its financial commitments in the eighties.

NIB regulations at the time stipulated that the such funds would be deposited in the bank, under the control of the ministry of planning, while the government, represented by the finance ministry, was able to borrow pensioners' cash from the bank at a 4.5 percent interest rate.

In 2005, after the ministry of social insurance was dissolved, the funds were placed under the ministry of finance, run at the time by Youssef Boutros Ghali.

Public and private pension funds are now under the control of the social solidarity ministry, which is currently headed by Ahmed Al-Borai.

According to Mervat El-Tellawi, Egypt’s former minister of social insurance, the total debts of Egypt's treasury to the pension and insurance funds amount to LE435 billion (roughly $63 billion), exceeding two-thirds of the state budget in 2013/14.

Pension funds as a result have become a creditor to the ministry of finance, which refused to admit to the total sum taken, conceding only LE200 billion (roughly $29 billion), El-Tellawi said.

“These recently-issued bonds are a positive step towards the ministry’s repayment of the pensioners' funds, but they must acknowledge the rest,” Al-Tellawi commented.

Over the last five years, the finance ministry has issued two eight-percent-interest-rate sukuk ('securities') to guarantee the LE200 billion debt. The aforementioned interest rate has added LE17 billion to the original debt.

“Last year, the ministries of social insurance and finance agreed on the debts of the latter, which currently stands at some LE142 billion,” Mohamed Maeet, former assistant to the minister of finance told Ahram Online. “The debts will be repaid over ten years through treasury bonds.”

Maeet explained that the current treasury bonds, issued to verify the dues of the pension and insurance funds, are similar to the sukuk that was issued before. “They’ve only changed the terminology, in order to differ from the Islamic bond project that was adopted by ousted president Mohamed Morsi.”

In September, a Cairo criminal court sentenced Ghali in absentia to 25 years in prison on charges of squandering public funds.

Prosecutors accused the country’s former minister of finance of squandering some LE28 million ($ 4.1 million) between 2009 and 2010, during his period in office.

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