Egypt, grappling with the highest borrowing costs since 2008, may be forced to ask the International Monetary Fund for the $3bn loan it spurned in June unless Arabian Gulf states make good on aid pledges.
The yield on the government’s one-year treasury bills soared 328 basis points, or 3.28 percentage points, to 13.86 percent since the Jan 25 revolt that ousted President Hosni Mubarak, the highest since November 2008. The extra yield investors demand to hold Egyptian debt instead of US Treasuries rose 160 basis points for the period to 421, according to JPMorgan Chase & Co’s data. Middle East spreads climbed 128 basis points on average to 437, the data show.
“They must go to the IMF and the World Bank,” Mona Mansour, co-director of research at Cairo-based investment bank CI Capital, said in a telephone interview. “The government will resort to foreign borrowing because this can’t continue.” Returning to the IMF risks a backlash from the activists who led this year’s revolt and objected to loans from the fund and the World Bank on the grounds that they endorsed Mubarak’s policies, said Raza Agha, an economist at Royal Bank of Scotland. The earlier protests contributed to the departure of finance minister Samir Radwan after the interim military rulers forced him to turn down the IMF and trim the deficit target by reducing investments. The IMF and Radwan denied that a loan would have come with stringent conditions.
“If they can’t get the money from the Gulf neighbours, then they could well be forced to go to the IMF again,” London-based Agha said in an e-mailed answer to questions on Oct 6. “That could lead to another confrontation with pro-democracy groups.”
Egypt hasn’t asked the fund for a loan, deputy Prime Minister Hazem El Beblawi and IMF spokesman David Hawley said last week. The country is in talks with Saudi Arabia and the UAE for $5bn in loans to finance the budget deficit, which the government aims to reduce to 8.6 percent of economic output in the fiscal year through June 2012. The gap was 9.5 percent in the previous 12 months.