Qandil Says Egypt to Sell Sukuk After New Law Is Approved

Prime Minister Hisham Qandil said Egypt plans to sell sukuk, or Islamic bonds, after new legislation on the debt instrument is passed within three months, a step aimed at meeting the budget deficit.

“This is something we want to do to enlarge the engagement” of investors who “want to use this tool but are currently unable to,” Qandil said. After the legislation is prepared, “I hope they will be ready with one or two issuances,” he said, referring to the Finance Ministry.

Qandil, speaking in an interview in Cairo, said he had no further details on the possible issuance, which would be used along with sales of traditional domestic debt and international aid to meet the fiscal year’s budget deficit of 135 billion Egyptian pounds ($22 billion), or 7.6 percent of economic output. A loan agreement of as much as $4.8 billion with the International Monetary Fund is expected to be completed by the end of November, he said.

The deficit has been widening as economic growth slows. Egypt is targeting 4 percent to 4.5 percent growth in the fiscal year that ends in June, Qandil said. The economy probably grew between 2 percent and 2.5 percent in the past fiscal year, Planning Minister Ashraf Al Arabi said Sept. 3.

Economic Downturn

The government is looking to revive an economy that has been hurt by political unrest since former president Hosni Mubarak was ousted in February 2011. Since then, borrowing costs have surged by about 50 percent and reserves plunged by more than half.

Still, the country has started to show signs of recovery after IMF loan talks were restarted last month and Qatar pledged $2 billion in the form of a central bank deposit. The finance ministry sold three-month treasury-bills today at an average yield of 13.75 percent, the lowest level since November.

The premium investors demand to hold Egypt’s dollar-denominated debt has plunged 208 basis points, or 2.08 percentage points, to 418 basis points since Mohamed Mursi was declared the country’s first freely elected president on June 24, according to JPMorgan Chase & Co.’s EMBIG Egypt Sovereign Spread Index. That compares with an eight-basis point increase for the Middle East average.

The government plans to liberalize the power distribution industry, Qandil said, by allowing the private sector to buy natural gas either locally or from abroad, build and operate power plants, and use state grids to sell electricity.

Natural Gas

BP Plc is due to start preliminary work this week on a project to produce natural gas from a deep-water deposit in Egypt’s Mediterranean basin, Chief Executive Officer Robert Dudley said Sept. 3. The company, which estimates Egypt’s gas reserves to be Africa’s third-largest, is committed to investing $10 billion in gas exploration in the country over the next five years, he said.

Qandil said the company’s investment is an example of his government’s intent on encouraging the participation of the private sector in the energy sector.

Egypt also plans to honor a Mubarak-era agreement for Qualified Industrial Zones, allowing Egyptian textiles producers to export to the U.S. duty-free under the condition they contain Israeli components, he said.

“A lot of people are making good business out of that,” Qandil said. “We want to make sure we do the right thing for them to flourish.”

Egypt doesn’t intend to devalue the local currency and will continue “proper management of the pound,” Qandil said. “For those businessmen that are waiting for the pound to devalue before getting into the market, they can get into the market now.”

The pound, subject to a managed float, has lost less than 5 percent since January 2011, outperforming the currencies of other emerging markets such as India and South Africa. The currency was little changed at 6.0919 a dollar on Sept. 7 after reaching 6.1084 on Sept. 4, the lowest level since December 2004.

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