Economic uncertainty drives up Egypt borrowing cost

Worries about the value of the Egyptian pound, which dropped some 4 per cent in the past week, drive yields on Egyptian t-bills upwards

Yields on Egyptian 182-day T-bills rose at an auction on Thursday as a weakening Egyptian pound and uncertainty about the fate of a $4.8 billion IMF loan drove up the cost of government borrowing.


The average yield climbed to 14.104 per cent from 13.300 per cent at the last issue on Dec. 25. Last week's auction was cancelled.

"Rates have been on the rise after the political tension since the presidential decree," said Cairo-based fixed-income dealer Ahmed Kheir El Din. "The uncertainty about the IMF loan is also weighing on trader sentiment," he said.

Political turmoil in recent weeks over a new constitution has put pressure on the pound as Egyptians scrambled to sell local currency, forcing the central bank last weekend to impose a new currency regime to try and preserve depleted foreign exchange reserves.

The pound hit a new record low of LE6.42 against the U.S. dollar on Thursday and has lost 3.7 per cent of its value against the dollar since last week.

The central bank accepted bids for LE2 billion Egyptian ($312.91 million) worth of 182-day T-bills - the same amount it offered.

The average yield on 357-day T-bills also auctioned on Thursday stood at 14.320 per cent. The central bank accepted bids worth LE2.5 billion, less than the LE4 billion offered. The yield at the previous auction of 357-day T-bills was not immediately available.

Investors are also worried that Egypt will not be able to enforce tax increases required if it is to secure a badly needed loan from the International Monetary Fund to help support its struggling economy.

New austerity measures introduced by the government are expected to bring Egypt's budget deficit to LE184.7 billion ($29 billion) by the end of the current fiscal year, down from an anticipated LE216.4 billion.

Actual deficit for the preceding 2011/12 fiscal year reached LE166.7 billion or 11 per cent of domestic output.

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