CAIRO – The Egyptian government approved a draft law Wednesday 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 that have fallen to critically low levels. Finance Minister Al-Mursi Al-Sayed Hegazy said Egypt could raise around $10 billion a year from the sukuk market - much more than some analysts expect - but added that it would take at least three months to push through the necessary regulations. Shaped by Egypt's first Islamist-led administration, the law will also allow private borrowers to issue sukuk. Egypt has never before issued bonds that adhere to Islamic principles, under which the payment of interest is impermissible. The law will be referred to the Islamist-dominated upper house of parliament before final approval from President Mohamed Morsi. An earlier version of the sukuk law had been criticized by Islamic scholars, forcing a rethink. With the Morsi administration facing a deep economic crisis, the issuance of Islamic bonds could provide some financial support as parliamentary elections approach. The voting is set to begin in late April and stretch into late June. Fitch Ratings said Wednesday the timing meant conclusion of an agreement with the International Monetary Fund on a $4.8 billion loan could be pushed back well into the third quarter. Foreign reserves have fallen to $13.6 billion - less than the $15 billion needed to cover three months worth of imports - and the deficit is forecast to hit 12.3 percent of GDP by the end of June unless economic reforms are implemented. The deficit rose by more than a third in the seven months to the end of January from the same period a year earlier, figures released on Wednesday showed. Hegazy, an expert on Islamic finance appointed earlier this year, said in January that the Islamic Development Bank, a multilateral institution, could be ready to buy around $6 billion of sukuk. He did not make clear on Wednesday whether the $10 billion annual figure referred to state issues alone, or included amounts he expected to be raised by private borrowers. — Reuters
