Egypt's Islamists plan to close budget gap with sukuk
DUBAI - Bloomberg | 5/5/2011 12:00:00 AM |
Egypt’s Freedom and Justice Party, set up by the Muslim Brotherhood, is proposing the government sell Islamic bonds for the first time.
Egypt’s Freedom and Justice Party, set up by the Muslim Brotherhood to run in this year’s parliamentary election, is proposing the government sell Islamic bonds for the first time.
“There’s a high percentage of the Egyptian people that has reservations about charging interest,” Ashraf Badr el Din, a member of the Brotherhood committee that wrote the party’s economic platform, said in an interview from Cairo on May 2. “Having this tool for financing will encourage these people to invest their money.”
Egypt’s last three treasury-bill sales failed to raise the full amount sought by the government as investors demanded higher yields, following a popular revolt that ousted the president. Moody’s Investors Service lowered the country’s credit rating to Ba3, the third-highest junk rating, on March 16.
Egypt’s Finance Minister Samir Radwan said on May 2 the government forecasts a budget gap of 9.1 percent of gross domestic product, or GDP, in the next fiscal year ending June 2012.
The political turmoil forced the Egyptian Financial Supervisory Authority to postpone issuing guidelines for the sale of sukuk to May from the first quarter. The Arab world’s most populous country, where 90 percent of the people are Muslim, has never sold sovereign Islamic debt.
“We’ve been working with the government for years to get them to sell sukuk, so when it happens we will certainly participate in the sale,” Adnan Ahmed Yousif, chairman of Al Baraka Bank Egypt, a unit of Bahrain-based Islamic lender Albaraka Banking Group, said in an interview from Beirut on May 2. “We’d buy the sukuk if it were in local currency or dollars, it doesn’t matter.”
The Ministry of Finance raised 2.6 billion Egyptian pounds ($437 million), or 26 percent less than it sought, in a treasury bill sale on May 2 as yields climbed to 12.66 percent on the nine-month debt, the highest level since November 2008.
Higher borrowing costs and a widening budget deficit prompted Minister Radwan to turn to the International Monetary Fund, or IMF, and the World Bank for as much as $6.2 billion of loans. Economic growth will slow to as little as 1 percent this year, the IMF said in its World Economic Outlook report on April 11, the lowest annual rate since 1992.
Global sales of sukuk, which pay asset returns to comply with Islam’s ban on interest, reached $5.2 billion this year compared with $4.4 billion in the same period last year, according to data compiled by Bloomberg.
[HH] Marching toward power
The Muslim Brotherhood, which was banned since 1954 and had fielded candidates to parliament as independents, established the Freedom and Justice party in April and hopes to gain as much as 50 percent of parliamentary seats in September, the group said last month. The party will submit the necessary documents to authorities within 10 days for its official registration, Secretary-General Mohamed Saad El-Katatni said on April 30.
“The banking system in Egypt will not be converted to the Islamic system,” the Brotherhood’s Badr el Din said. “The market will be available and those who want to deposit their money in Islamic banks can do so. Those who don’t want to, it’s up to them.”
Egypt has three Shariah-compliant banks, Al Baraka, Faisal Islamic Bank of Egypt and National Bank for Development, for its 73.9 million Muslims.
“The untapped demand for Islamic financial services is potentially quite significant” in Egypt, Aamir Rehman, a Dubai-based managing director at Fajr Capital, an Islamic investment firm said in an e-mailed response to questions on May 4. “Allowing customers to use Islamic financial services may prove beneficial in attracting deposits from Egypt’s under-banked population, which will help boost the country’s economy.”