CAIRO, Sept 19 (Reuters) - Egypt has returned to Qatar $2 billion that the Gulf state had deposited with Egypt's central bank, after negotiations to convert the funds into three-year bonds broke down, central bank Governor Hisham Ramez said by telephone on Thursday.
Qatar had sent Egypt $3 billion in May, of which it converted $1 billion into three-year bonds.
Ramez said the Qatari authorities had agreed the week before last to convert the entire remaining $2 billion but then changed their minds.
"They wanted to postpone it, then they said they would do it like they announced last time, and then they came back with some amendments, doing part and postponing the other part for a time, which we found not suitable for us," he said.
"So we just repaid the deposit."
Cairo's relations with Qatar deteriorated after the Egyptian army deposed President Mohamed Mursi on July 3. Qatar had been a firm backer of Mursi's Muslim Brotherhood and lent or gave Egypt $7.5 billion during the year he was in power.
On July 1, Egypt converted the $1 billion into three-year bonds at 3.5 percent interest and in May it converted another $2.5 billion of Qatari loans into 18-month bonds at 4.25 percent interest. The bonds were listed on the Irish stock exchange.
Since Mursi's ouster, Saudi Arabia, Kuwait and the United Arab Emirates have pledged Egypt $12 billion in grants and interest-free loans.
"I would assume they are fairly relaxed about their short-term finances and they can rely on aid from other Arab countries," said Simon Kitchen, a Cairo-based strategist with EFG Hermes.
Egyptian officials have said that the loss of the Qatari funds would not affect the country's financial situation during the budgetary year that began on July 1.