CAIRO: Egypt is working to develop its secondary market for government securities, but does not plan to require commercial banks to act as market makers anytime soon, the country’s finance minister said on Monday.
The government is also considering reopening Eurobonds it has already issued and is drawing up a plan to stimulate Egypt’s economy without adding to its budget deficit, the minister said.
Egypt’s fixed income secondary market has lagged far behind that of its equity market, with only a handful of Egyptian government and corporate securities trading each day. Analysts say this has pushed up the government’s cost of borrowing and reduced options for corporations seeking to raise finance.
"We’re trying to promote the secondary market — getting market makers, getting new players, reopening bonds," Finance Minister Youssef Boutros-Ghali said in an interview.
Despite the thin trade, the government did not contemplate requiring the banks it permits to buy government securities directly to resell them on the secondary market at regularly quoted prices, a reform recommended by bond traders.
"To do this, we would need to change some legislation to force them to make markets at given spreads and to force them to have a certain volume per month," Boutros-Ghali said. "We are not contemplating, yet, legislative changes."
Bond traders and businessmen complain that rather than use their depositor funds to lend to private businesses, the 15 commercial banks licensed to deal on the primary market tend to sit on their bonds until maturity as safe and easy investments.
Boutros-Ghali said the government continued to work on other ways to open up the secondary market, including a plan broached a year ago to allow investment banks to buy securities on the primary market.
"We’re trying to increase the number of players in the market," he said. "This requires other changes in the law that we’re discussing with the central bank."
Egypt has taken a number of measures in the last year to spur fixed-income trade. In January it began letting utilities and other quasi-government organizations issue bonds and in April began letting corporations and other bodies issue bonds in batches once they get approval from the regulator.
Speaking of the international market, Boutros-Ghali said the government was studying a plan to reopen Eurobonds it has already issued.
"We may reopen some of the issues that are out there, just to fluff up the yield curve a bit," he said. "We’re doing this mostly for private investors to give them benchmarks in the international marketplace."
Egypt sold $1.5 billion in Eurobonds in April with maturities of 10 and 30 years. It has other global notes maturing in 2011, 2012 and 2015.
Last week, Boutros-Ghali said Egypt was considering issuing a separate 100-year Eurobond.
Boutros-Ghali said the government was also drawing up a stimulus plan that would inject a "significant" amount of additional spending into the economy without increasing the budget deficit.
Egypt’s economy grew by 5.1 percent in the year to end-June, up from 4.7 percent in 2008/09 but down from around 7 percent in each of the three years before the global economic crisis.
"Right now, we’re thinking of a new stimulus package that is not budget-based. We’re going to ease credit facilities for a certain strata of the population, within the banking system, entirely at their own risk," he said. "But I don’t want to elaborate too much before I announce it," he added.
The government has adopted three budget-based stimulus packages worth a total 34.2 billion Egyptian pounds ($5.97 billion) since October 2008.
