Bloomberg News

Egypt’s 10-Year Dollar Bond Jumps as Radwan Raises Taxes

June 01, 2011

(Updates with credit default swaps in second paragraph.)

June 1 (Bloomberg) -- Egypt’s 10-year dollar bond rallied to the highest since January and credit risk fell after the government said it would impose a capital gains tax of 10 percent as part of its attempt to curb the deficit.

The yield on the 5.75 percent security due in April 2020 tumbled 11 basis points, or 0.11 percentage point, to 5.82 percent at 6:24 p.m. in Cairo, the lowest since Jan. 25. The cost of insuring Egyptian government debt against default for five-years fell 21 basis points to 304, according to data provider CMA.

Profits from capital investments, dividend payments, mergers and acquisitions and asset revaluations will be taxed, Finance Minister Samir Radwan told reporters in Cairo today. Egypt’s deficit may reach 10.95 percent of gross domestic product in the fiscal year that ends in June 2012 after a revolt that toppled President Hosni Mubarak in February hurt revenue from tourism and industrial output, Radwan said.

“Any increase in taxes should help the government reduce the budget deficit which is a major concern for investors right now,” said Moustafa Assal, head of fixed income at Cairo-based Beltone Financial. “Sooner or later they had to apply the capital gains tax, because they need to use all available means to raise funds.”

The government will also raise taxes for individuals and companies with an annual income of 10 million Egyptian pounds ($1.7 million) or more to 25 percent compared with 20 percent this year.

The North African country is raising pay for state employees and increasing fuel and food subsidies in the next fiscal year. The budget gap will widen from an expected 8.6 percent of GDP in the year that ends this month, according to a cabinet statement today.

CMA is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

--Editors: Claudia Maedler, Inal Ersan

To contact the reporter on this story: Ahmed A Namatalla in Cairo at anamatalla@bloomberg.net To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net


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