Egypt launches the first sukuk in the pound.. Will it be a new debt formula or an Islamic financing gateway? | economy

Al Jazeera Net correspondents

CairoIn a historic precedent in the government debt market, Egypt launched the first issuance of sovereign bonds in local currency, with a total value of 3 billion pounds ($63.2 million) for a period of three years, with an average competitive return of 21.56%. This comes within the framework of the government’s efforts to diversify financing tools, enhance the attractiveness of the financial market, and reduce the cost of public debt.

The offering witnessed strong demand with coverage exceeding five times, and with a less expensive yield compared to traditional bonds, which recorded 21.82% in the previous week, and was lower than similar Treasury bonds on the same day, which averaged a yield of 21.70%.

This step raises pivotal questions about its economic implications:

• Do sovereign sukuks represent a real shift in state financing mechanisms?
• Will sovereign sukuks contribute to reducing the cost of debt and providing new financing alternatives, or are they just an Islamic formula for government debt?
• It also raises the broader question: Will this experience be the beginning of a new wave of Islamic finance in Egypt?

The government’s purpose of issuance

The Ministry of Finance said in its first statement following the offering that the issuance aims to expand the competition base and attract new savers to invest in government securities, thus contributing to reducing the cost of financing.

The Ministry added that the sukuks aim to attract a new segment of investors interested in instruments compatible with the provisions of Islamic Sharia, to support the state’s efforts to diversify sources of financing and prolong the life of the public debt portfolio.

Size of the sukuk programme

This constitutes the first tranche of the sovereign sukuk program amounting to 200 billion pounds (about 4.21 billion dollars), which are Ijara sukuks based on financial leasing of assets owned by the Ministry of Finance in Ras Shuqair in the Red Sea.

Egypt had established a general program to issue sovereign sukuks compatible with Islamic Sharia with the aim of diversifying funding sources and reducing the cost of debt service, and doubled its value from 25 to 200 billion pounds (from 526 million to 4.21 billion dollars) after strong demand from banks and financial institutions.

In June 2025, President Abdel Fattah El-Sisi issued a decision to allocate more than 174 million square meters, equivalent to about 41.5 thousand acres, of state land in the Ras Shuqair area for the Ministry of Finance to be used to reduce public debt and issue sovereign bonds.

Sukuk and a new wave of Islamic finance

Banking expert Tariq Metwally said that Egypt’s issuance of the first sovereign sukuks, especially the leasing sukuks, represents a qualitative step in the local debt market, as these sukuks are linked to real assets owned by the state, which provides transparency and additional guarantees to investors compared to traditional bonds, which attracts the interest of major Islamic banks.

Metwally explained in his interview with Al Jazeera Net that the issuance of sovereign sukuks came in response to two main reasons:

• Diversify the sources of financing the budget deficit and reduce the cost of borrowing.
• Meeting the needs of investors looking for financial instruments compatible with the provisions of Islamic Sharia.

Dion in a new dress

Metwally believes that this step paves the way for a new wave of Islamic finance in Egypt, given the presence of a wide customer base in Islamic banks looking for legitimate investment tools.

Although he praised the step, the banking expert pointed out that the sukuk are nothing but a new formula for government debt, as they contribute to reducing the cost of financing, but they do not reduce the size of public debt, adding that they reflect, at the same time, the confidence of financial institutions in the Egyptian government’s ability to fulfill its obligations.

Huge financing gap

The financing gap for the current fiscal year is estimated at about 3.6 trillion pounds ($75.8 billion), and the Ministry of Finance plans to cover this deficit with:

• Issuing local debt instruments worth 3.2 trillion pounds ($67.4 billion), including: 1- 2.2 trillion pounds ($46.3 billion) in the form of treasury bills. 2- 928.9 billion pounds ($19.6 billion) in the form of treasury bonds.
• Borrowing and international issuances worth 400 billion pounds (about 8.4 billion dollars).

Timing of sukuk issuance

Regarding the timing of the launch, the former Vice President of Banque Misr explained that financial policies are determined according to the state’s needs at every stage, and the government saw that issuing sukuks at this time is necessary to meet financing requirements and attract a new segment of investors.

She said in statements to Al Jazeera Net that sovereign sukuks represent a “third way” to reduce the cost of debt and provide flexible financing alternatives that reduce reliance on traditional bonds or direct external financing, noting that asset returns or their market value constitute the basic guarantee of the state’s commitment to repay the rights of sukuk holders.

The economic expert added that the success of the first issuance and its coverage five times reflects investor confidence and the government’s success in attracting financial institutions committed to investing in accordance with the principles of Islamic Sharia, anticipating an expansion of the volume of issuances in the next stage.

Debt interest eats up state revenues

Despite the success in securing financing, debt interest still places enormous pressure on the general budget, as these interests consumed all state revenues during the first quarter of the fiscal year, and even exceeded total revenues by about 50 billion pounds ($1.05 billion).

These challenges come at a time when the government expects to record a total deficit of 7.3% of GDP for the current fiscal year.

According to the Ministry of Finance report, the fiscal deficit rose to 2.5% of GDP during the first quarter, while debt interest increased by 54% to reach 695 billion pounds ($14.6 billion) of total expenditures, becoming the largest burden on the budget and the Egyptian economy as a whole.