Egypt's Senate (Photo: Khaled Mashaal)
The Senate – Egypt's consultative upper house of parliament – is scheduled to meet on Monday to discuss a new government-drafted law on Sovereign Bonds (Sukuk).
A report prepared by the Senate's economic and financial affairs committee said the 24-article bill, approved by the cabinet last November, aims to contribute to improving the state's financial performance and achieving the short and long-term objectives of covering the budget deficit.
"This comes through cutting the debt servicing bill, creating new tools for covering the budget deficit, diversifying sources of finance, and stimulating demand on government-issued financial securities," said the report, adding that "in this context the new law was drafted to allow the Ministry of Finance to issue sovereign bonds (Sukuk) to raise capital necessary for spending on economic and investment projects targeted by the state budget and development plan."
According to the report, "the sovereign bonds (Sukuk) is a new kind of government financial securities that go in line with Islamic sharia and aims to attract Egyptian and foreign investors who abstain from investing in traditional financial and debt servicing securities currently on the market."
The report argues that sovereign bonds have become a very attractive investment tool on world market in recent years. "Investments in sovereign bonds (Sukuk) generated as much as USD 2.7 trillion in recent years and most of them come from countries like Malaysia, Saudi Arabia, Indonesia, Britain, the United Arab Emirates, Turkey, and Bahrain," said the report, deploring that "sovereign bonds (Sukuk) are almost non-existent on the Egyptian market though there is no reason for not tapping this investment tool as long as the economic environment is friendly and as long as it can serve the state's economic objectives."
The draft law is divided into six chapters. "The first explains definitions and terms used in the draft law, and also deals with the role of the Ministry of Finance in issuing sovereign bonds and the use of its proceeds," said the report, adding that it also states that the prime minister is the one authorized with issuing the law's executive regulations after getting the opinion of the General Authority of Financial Control."
Article 2 of chapter one explains how the proceeds of the sovereign bonds (Sukuk) will be used by the Ministry of Finance. Articles 3, 4 and 5 deal with the different forms of sovereign bonds (Sukuk), how they go in line with Islamic Sharia, and in what way they will be handled on the market of financial securities and that they can be denominated in both local and foreign currency.
Article 6 states that taxes imposed on current financial securities will be also levied on the proceeds and returns of sovereign bonds (Sukuk).