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Egypt’s expected $68bn borrowing needs: Why sukuk can help reduce its debt

By Sherif Tarek
Posted on Thursday, 10 June 2021 18:34, updated on Friday, 11 June 2021 12:36

A view of Old Cairo with a mosque minaret and the Great Pyramids on March 21, 2020. REUTERS/Amr Abdallah Dalsh

A forecasted decrease in GCC sukuk, Egypt’s enticing yields, and business sectors that have thrived during the pandemic could guarantee the country an auspicious low-cost debut of the Islamic bonds. On the other hand, the sukuk could lead to a rise in utility bills.

Egypt’s impending issuance of the sovereign sukuk is widely hailed as a step towards attracting a new class of investors into the debt market. The move is also expected to bridge the country’s budget deficit at a lower cost, even though indicators of global economic recovery point to mixed signals ahead of the anticipated move.

The Islamic bonds could also set the stage for further austerity driven by the pressure of a free market, should state institutions that provide utility services begin to issue sukuk and consequently increase prices to ensure yields provision to debtors.

Sukuk: ‘structured in accordance to Islamic sharia’

Sukuk, a transliteration of the word ‘certificates’ in Arabic, are bonds structured in accordance to Islamic sharia. They were first introduced to the world in the 1990s and in recent years have been gaining momentum internationally, prompting Egypt to jump on the bandwagon.

On Sunday 6 June, the Egyptian parliament tentatively gave the green light for the sukuk draft law: it is likely to be implemented in the near future after a final nod from the lower house and an approval from President Abdel Fattah al-Sisi. This will then enable the government to securitise its assets and issue the Islamic bond.