The government, seeking to head off a funding crisis, is preparing to raise about US$2 billion through its first issue of Islamic bonds, an Islamic scholar familiar with its planning said on Tuesday. "The Egyptian government is convinced that a foreign currency sukuk will fund the country's development projects and can also bridge the gap in its currency reserves," Sheikh Hussein Hamid Hassan told Reuters, referring to the Arabic word for financial bonds acceptable by Islamic law. "The sukuk will be in dollars or euros or maybe a combination. It will be around $2 billion, issued in several tranches targeting mainly Egyptians living outside Egypt." Sheikh Hussein is one of the leading scholars in the Islamic finance industry, which is built around religious principles such as the avoidance of interest payments. Based in Dubai, he chairs a series of boards which evaluate Islamic financial instruments. He is not an official adviser to the Egyptian government but has been discussing the possibility of a sukuk issue with it. Sheikh Hussein said he had proposed four structures for the sukuk and the government would choose one. Asked when the debt might be issued, he said: "The date of issue is not final yet but Egypt is in urgent need of funding." Hit by declines in foreign investment and tourism, the Egyptian Central Bank's foreign reserves fell $1.77 billion to $16.35 billion in January and are down by more than half since the uprising which ousted Hosni Mubarak in February last year. That threatens a sharp slide in the value of Egypt's currency. The government is also grappling with a large budget deficit that it is financing at high cost by issuing short-term Treasury bills to local banks at yields above 15 percent. Last month Egypt said it was asking the International Monetary Fund for $3.2 billion in emergency loans; a deal could encourage other foreign donors to aid Cairo. But the IMF said it expected talks on an agreement to take two or three months. Islamic finance was not encouraged under Mubarak's secular government but it is expected to grow in Egypt after Islamist parties won well over half of the seats in parliamentary elections last month. The government has drafted legislation that would facilitate issues of sukuk. Because they attract pools of conservative Islamic investment money, sukuk have often proved to be more stable than conventional bonds during the global financial crisis, and they might be an effective way to attract some of the savings of millions of Egyptians living abroad. They might also be bought by Islamic investment funds in the wealthy Arab Gulf. A Saudi Arabian newspaper, Asharq Al-Awsat, reported this week that Egypt's Finance Ministry had asked National Bank of Egypt, the country's largest bank, to study ways in which a sovereign sukuk could be issued in the near future. Marketing could start as soon as next week if the government approves, the newspaper said.
