Egypt to fund deficit at home, not by foreign bonds

CAIRO (Reuters) - Egypt expects to finance its mounting budget deficit through domestic borrowing rather than issuing foreign bonds, Finance Minister Youssef Boutros-Ghali said on Thursday.

Egypt's budget for 2009/10, starting from July 1, forecasts a deficit of 98.9 billion Egyptian pounds, equivalent to about 8.4 percent of forecast gross domestic product. The deficit was expected to be 6.9 percent in 2008/09.

When asked if the state would sell foreign bonds to finance the deficit rather than fund it domestically, the minister said: "No. At present the (foreign bond) market is not suitable."

Egypt's total domestic debt at the end of March was 745.03 billion pounds and foreign debt stood at $30.88 billion, putting total debt at the equivalent of almost 90 percent of gross domestic product, according to central bank figures.

Standard Chartered wrote in a note published before the minister's comments:

"In Egypt, with a projected fall in revenues of 17 percent and limited access to international capital markets, the widening in the budget deficit will, to a certain extent, have to be financed by increased domestic borrowing."

Total debt has dropped from the equivalent of 125 percent of GDP in 2004, the year Prime Minister Ahmed Nazif and his economically reform-minded cabinet took office.

"We do not believe that the government's fiscal sustainability will be undermined by the higher deficit," Beltone Financial wrote in a note on the budget.

The bank said this was due to the fact that "debt to GDP ratios are declining and that the growth in tax bases and revenue-side reforms should help increase revenues, when the effect of the global crisis runs its course."