Qatar Lifts Egypt Assistance by $2.5 Billion, Hegazi Says

Qatar will increase its assistance to Egypt by buying $2.5 billion of government bonds to help shore up its economy after the 2011 revolution, Egyptian Finance Minister El-Morsi Hegazi said.

Egypt’s Cabinet will discuss the debt offering and the company that will handle it next week, Hegazi said in an interview in Cairo yesterday. The gas-rich Persian Gulf emirate has already provided $5 billion of grants and central bank deposits to Egypt, and will continue to stand alongside the nation, Qatari Prime Minister Sheikh Hamad bin Jassim al-Thani told reporters Jan. 15 in the capital Doha.

Qatar’s assistance has given the Arab world’s most populous country a financial cushion as it seeks a $4.8 billion loan from the International Monetary Fund. Egypt’s foreign reserves remain almost 60 percent below their levels before the uprising that ousted former leader Hosni Mubarak from power. President Mohamed Mursi’s government is seeking aid to bolster the economy as protesters take to the streets over his leadership.

“Basically they are recognizing that Egypt is a very important country in the region,” Steffen Reichold, an emerging markets economist at Stone Harbor Investment Partners LP in New York, said by phone. “Qatar is very much interested in keeping things as stable as possible and using some of their large resources to contribute to that.”

A phone call to Qatar’s Finance Ministry after hours seeking to confirm the deal wasn’t answered.

Yields Drop

Yields on Egypt’s 5.75 percent dollar-denominated bonds due April 2020 fell one basis point, or 0.01 percentage point, to 5.53 percent yesterday. Five-year credit-default swaps on Egyptian sovereign debt declined 18 basis points to 447 basis points, the lowest level since Dec. 5, according to London prices. the contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to debt agreements.

The average yield on one-year local-currency Egyptian Treasury bills climbed 18 basis points to 14.50 percent at the last debt auction this month, according to central bank data collated by Bloomberg. The government’s domestic borrowing costs have been rising since Standard & Poor’s cut Egypt’s credit rating to the same junk level as Greece Dec. 24 on the political turmoil. The average yield on one-year debt is still almost 40 percent higher than before the 2011 overthrow.

The central bank introduced dollar auctions Dec. 30 aimed at stemming the drop in reserves, stoking depreciation in the pound, which has weakened 8.2 percent versus the dollar in the past year to 6.5815 yesterday. It hit a record-low 6.5826 per dollar Jan. 15.

The economic situation in Egypt is “very serious” and the government needs to conclude a loan agreement with the IMF “as soon as possible,” U.S. Senator John McCain said in an interview yesterday in Cairo, where he is part of a delegation.

Egypt’s real gross domestic product rose 1.96 percent last year, up from growth of 1.78 percent in 2011, the slowest pace since at least 1998. Economic expansion has averaged 4.81 percent over the past 14 years.

Before it's here, it's on the Bloomberg Terminal.