Egyptian parliament's Economic Affairs Committee approved a new law on Tuesday that will open the door for the Finance Ministry to issue sovereign bonds (Sukuk) on local and foreign markets.

The approval came just one day after the Senate – Egypt's consultative upper house parliament – voted in favor of the 24-article law.

Ahmed Samir, the chairperson of the Economic Affairs Committee, said the new government-drafted law sets the framework for Egypt to tap into the sovereign bonds market for the first time.

"Sukuk have become an internationally-recognized tool for raising capital on world markets and so the time has come for Egypt to join these markets to generate money that can be used for spending on development projects and investment programmes," said Samir.

Samir said that sukuk will be attractive because they are compliant with Islamic Sharia. "Due to this fact, investments in sovereign bonds (sukuk) are now everywhere on Islamic markets like Saudi Arabia, Malaysia, Indonesia, the United Arab Emirates, Bahrain, and Turkey and they have generated as much as USD 2.7 trillion in recent years," said Samir.

Ahmed Diab, secretary-general of the Economic Committee, said the capital generated by sukuk could also be used by the Finance Ministry to improve the state's financial performance and achieve the short and long-term objectives of covering the budget deficit.

A government explanatory report on the law said "the sovereign bonds (sukuk) are a new kind of government financial securities that go in line with Islamic Sharia and aims to attract Egyptian and foreign investors, particularly those who refrain from investing in traditional financial and debt servicing securities currently available on the market."

The report laments that "sovereign bonds are almost non-existent on the Egyptian market though there is no reason for not tapping this investment field as long as the economic environment is friendly and they can serve the state's economic objectives."

Article three of the draft law states that "sovereign bonds (sukuk) will be issued in the form of both paper and electronic securities and in accordance with the conditions set by the law's executive regulations. "

The Economic Committee decreed that the bill's executive regulations be issued within three months from the date of application.

Article three also says that "sovereign bonds (sukuk) will be denominated in both Egyptian pounds and foreign currency and on local and foreign markets."

Article five states that "a watchdog committee" comprising financial, economic, legal and Islamic Sharia experts will be in charge of supervising the sovereign sukuk-issuance process. "This committee will also supervise the handling of sukuk on the market, beginning with the issuance process and ending with the restoration of their value," said Article five, adding that "the Committee will be also tasked with preparing an annual report on the sukuk market."

Article 6 states that taxes imposed on current financial securities will be also levied on the proceeds and returns of sukuk.