Egypt considers USD185bn debt restructuring

Egypt considers USD185bn debt restructuring

Egypt's ministry of finance is considering restructuring its local and foreign debts totaling EGP 1.29 trillion (USD 184.7 billion) in a bid to reduce pressure on the general state budget, finance minister Dr. Fayyad Abdel Moneim has told Zawya.

The country's total debts have reportedly increased by 13% to EGP 1.29 trillion for the financial year 2012/2013 compared with EGP 1.14 trillion in 2011/2012, according to the proposed state budget submitted to the Shura Council.

Out of the total debt figure, around EGP 1.13 trillion comprise local debt - representing a 14% hike from the previous year - and EGP 162 billion account for foreign obligations, which rose by 7%, year on year.

"We are considering loans from the Central Bank of Egypt (CBE) at the announced rate, instead of resorting to the Treasury bill [T-bill] mechanism at 13%, which will ultimately alleviate the general debt. This would also restrict monetary printing operations, which could result in the exacerbation of inflation," said Abdel Moneim.

As per the announced rates on the CBE portal, inter-bank rate per night has been 10%while return and loan rate per night stood at 9.75% for returns and 10.75% for loans, effective March 24, 2013.

Meanwhile, T-bill revenues as per May 9, 2013 were recorded at approximately 14.7% deferred for 357 days while securities reached 16.9% as of May 2, 2013 deferred until January 1, 2023, according to data posted on the ministry of finance's website.

The finance minister added that the country had no intention of printing bills, further emphasizing that the government has a complete and comprehensive framework in place for the re-scheduling of debt.

Egypt's source capital has grown substantially by 27% to reach EGP 229.2 billion in January 2013, compared with EGP 179.8 billion in June 2011. The January 2013 capital was also 5% higher from the EGP 219 billion recorded in December 2012.

"The subsidies scheme will be restructured so that subsidies will reach those who rightfully deserve them. Three subsidy mechanisms have been adopted throughout the world today - one is through the subsidy of goods such as bread and petrol that are required by everyone. The other is through cash subsidies, which has often been accompanied by substantial inflation; and the third is exemplified by coupon subsidies, which have proven to be the most viable option,"the minister explained.

Abdel Moneim, who was assumed his position last week, also mentioned that the subsidies system urgently requires an effective database that can only be attained through a national ID system. Through this, petrol subsidies can be provided through coupons as per the vehicle model. Likewise, distribution of goods subsidies can be implemented through a rations card and as per the citizen's income.

According to Abdel Hamid Al Gammal, member of the Shura Council's economics committee, installments and interests on debts represent around 60% of the state's general budget for the year 2013/2014.

"This issue has been discussed and we believe the obligations are causing substantial burden on the national economy. However apart from taking out loans, several options are being considered to mitigate the situation," he said.

The proposed budget for the financial year 2013/2014, which was presented to the Shura Council, noted that total interest on debts was EGP 182 billion, representing 26% of the public expenditures (EGP 692.4 billion) for the period. Subsidies, grants and social allowances account for 30% at EGP 205.5 billion while worker wages and compensations were EGP 172.2 billion, comprising 25% of the state budget.

Zawya 2013