Egypt's entrance into the sukuk market had been on the horizon for some time, and now it is a reality. It will be interesting to see whether Egypt will become a regular sukuk issuer or an infrequent one, Bashar Al-Natoor, the global head of Islamic finance at Fitch Ratings, told Ahram Online.

With a total value of $1.5 billion, Egypt successfully issued its first US-denominated sovereign bonds, Islamic sukuk, with a yield of 11 percent.

Some 250 investors from various global markets purchased these bonds, and their proceeds will be directed to finance public investment projects.

“It is a very critical step for the country and its economy. Egypt seeks to diversify its financial resources by attracting new types of investors who are interested in Islamic finance,” Al-Natoor added.

“There are main drivers for sovereigns to issue sukuk. Unlocking the potential of Islamic finance investment and diversifying funding sources come on top of the list. In some cases, the aim is also to develop the Islamic finance market and/or ensure that the Islamic banking sector has access to short- and long-term debt,” Al-Natoor noted.

He added that if a sovereign is ultimately successful in developing a benchmark and yield curve, this might open the door to other non-sovereign issuers in the country, and sukuk might become an option.

In 2021, prior to the war in Ukraine, Egypt planned to issue Islamic Sukuk with a value of $2 billion and took steps on the ground to secure financial facilities to issue this sukuk as well as green sukuk.

Egypt has created an international programme for sovereign bond issuance for a total value of $5 billion, which was registered in the London Stock Exchange on 14 February, according to the Ministry of Finance.

Driven by the high global oil prices, elevated interest rates, and geopolitical tensions, Islamic sukuk issuance from the key markets of the GCC, Malaysia, Indonesia, Turkiye, and Pakistan (including multilaterals) dropped in 2022 by 7.9 percent (Y-o-Y) to $244.3 billion, according to Fitch Ratings' update on the Global Sukuk Outlook Dashboard released in January.

Egypt is expected to suffer a significant financing gap estimated at $17 billion over the coming four years.

The government, under the country’s fresh $3 billion loan deal with the International Monetary Fund (IMF), has set a plan to bridge this gap by securing almost $14 billion in loans from multilateral and financial institutions, along with the sale of state-owned assets through either the initial public offering programme (IPO) or direct investments.

In February, a number of the government’s ministers paid visits to some GCC markets to tout the 32 state-owned companies Egypt has listed to be privatised in March, alongside other investment opportunities Egypt has.

Since the onset of the war in Ukraine, Egypt has depreciated its local currency by over 100 percent and hiked its key interest rates by a total of eight percent, which both have contributed to the exodus of about $25 billion in indirect investments and caused a shortage in the hard currency in the local market, especially in the US dollar.

As the elevated inflation forced the central banks globally to tighten their monetary policies, chiefly the US Federal Reserve and the Central Bank of Europe, the capital market has been witnessing a significant fluctuation.