Tunisian parliament approves Islamic sukuk bond issues

Reuters, Thursday 18 Jul 2013

Islamist-led Tunisian government to develop Islamic finance in response to gaping budget deficit and critically-low foreign currency reserves

Tunisia's parliament has passed a law that will allow the state to issue Islamic bonds, or sukuk, a move that could help narrow a gaping budget deficit and boost foreign currency reserves, which have fallen to critically low levels.

Finance Minister Elyess Fakhfakh told parliament that his ministry planned sometime in November or December to issue a sovereign sukuk to raise $700 million.

The government, led by moderate Islamists, is keen to develop Islamic finance, which was neglected by the autocratic secular regime for ideological reasons before the 2011 revolution. A Tunisian sukuk issue could potentially attract large amounts of Islamic-oriented funds from the wealthy Gulf.

The bill received 102 votes in favour in the vote in parliament, held in a closed session late on Wednesday.

"Tunisia's financial difficulties require the mobilisation of all resources, including Islamic sukuk," Fakhfakh said.

Tunisia is running a large state budget deficit, which it has projected at about $3.2 billion this year, and political tensions are hurting its ability to finance itself.

The assassination of opposition figure Shukri Belaïd in February sparked the worst political crisis since Zine al-Abidine Ben Ali was toppled as president more than two years ago.

The crisis ended with the resignation of the government and the formation of a new one headed by the Islamist Ali Larayedh.

The North African country, which has also signed a $1.7 billion standby loan agreement with the International Monetary fund (IMF), is struggling with rising inflation and a big external deficit as well as its uncertain political outlook

A slide in foreign reserves could push it into a balance of payments squeeze resembling the crisis in Egypt.

Tunisia's foreign currency reserves last month fell for the first time below the level the central bank considers adequate, at just 94 days of import cover.

Ferjani Dogman, chairman of the parliamentary Finance Committee, said Islamic bonds would help to diversify Tunisia's funding sources, but were "not aimed at Islamisation of the economy".

The Moderate Islamic Ennahda Party heads the government in coalition with two secular parties after winning Tunisia's first free election in 2011.

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