Traders say Egypt delays wheat payment guarantees, ministry dismisses criticism
Egypt has not issued letters of credit for 16 recently purchased wheat cargoes which effectively means a delay in payment, sources said on Wednesday, although the authorities said appropriate payment guarantees had been or would be made.
The payment issues affect cargoes ordered by the world’s largest wheat buyer for 945,000 tonnes of wheat, traders told Reuters, adding that the purchases in state tenders were for shipment to Egypt during Nov. 11-20, Dec. 1-10 and Dec. 11-20.
Responding to the Reuters report, the Supply Ministry said letters of credit had been issued for three wheat cargoes and would be issued for five more. It said guarantees for another eight cargoes had not yet been issued because the shipment date of Dec. 11-20 had not been reached.
Letters of credit are banking guarantees for on-time payment from a buyer to a seller.
Acute shortages of foreign currency have in the past caused delays but Egypt’s net foreign reserves were $44.513 billion at the end of November, enough to cover about nine months of imports. Reserves have more than doubled in the past two years.
“This kind of delay is not unheard of and there have been incidents before but the difference this time is two things, first of all it is a large amount of wheat, three shipment periods and secondly they felt the need to tell some suppliers that the letters will not be issued until January, that is what is causing some concern,” one Cairo-based trader said.
Cairo, which prioritises spending on its massive wheat import programme, pays around $1.5 billion annually for the grain as part of a bread subsidy programme on which many of Egypt’s almost 100 million people depend.
“We don’t know the exact nature of the problem as to why there is a delay in letters of credit but what we do know is nothing will happen before January because that is what the Ministry of Finance has told GASC,” another Cairo-based trader with knowledge of the matter said.
Traders have said Egypt’s state grain buyer, the General Authority for Supply Commodities (GASC), had asked suppliers who sold cargoes for the Dec. 11-20 shipping period if they could delay shipments to January or ship without letters of credit.
Suppliers for the other two shipping periods were not informed in advance of a delay, traders said.
When state tenders are awarded, the firm selling the commodity asks for a letter of credit from one of Egypt’s state-owned banks, which is confirmed with its own bank.
GASC’s letters of credit are typically issued prior to shipment, with payment guaranteed within 180 days.
Source: Reuters (Additional reporting by Gus Trompiz in Paris; Editing by David Evans and Edmund Blair)