DUBAI/HAMBURG: Egypt, the world’s largest wheat importer, will go back to paying its grain suppliers within 180 days instead of immediately, a government source and traders said on Monday.
Egypt’s state grain buyer GASC had said in January it would start immediate on-sight payment after obtaining financing from Islamic Trade Finance Corp. for its international purchasing tenders.
Before that announcement, GASC had for years used a deferred payment system introduced at a time when foreign-exchange shortages plagued Egypt’s economy, pushing up wheat prices offered to the state buyer at its international tenders.
“We can switch between the two payment methods if we don’t have the financing available,” the government source, who is close to the matter, said.
“The next tender to be announced will be with 180-day facilities,” he said.
GASC was not immediately available for comment.
The state buyer secured $1 billion of a $3 billion Islamic Trade Finance Corp. deal to fund its wheat purchases in January.
Prior to that deal, GASC’s letters of credit — banking guarantees for on-time payment to sellers — were being issued prior to shipment, with payment guaranteed within 180 days.
GASC is reverting to that deferred payment system for its upcoming tender, the government source said on Monday.
A senior government source told Reuters in January that the financing from Islamic Trade Finance could be renewed when the initial $1 billion tranche was used up, so deferred payments would no longer make purchases more expensive for GASC.
Egypt said at the end of February it had used $213 million in funding from Islamic Trade Finance for wheat purchases so far, buying 1.02 million tons.
This latest reversal indicates that more funding from that facility is not now readily available, traders said.
“The question being asked is how much money Egypt has,” a European trader said.
“I think this (delayed payment) would add $6 to $7 a ton to the cost of buying wheat compared to immediate payment,” he said.
On-sight payment means cheaper offers by suppliers because the cost of financing deferred payment would be taken out of traders’ calculations when making offers to GASC at international tenders.
Cairo pays around $1.5 billion annually for the grain as part of a bread subsidy program on which many of Egypt’s almost 100 million people depend.