At a time when governments of both poor and rich countries as well as many corporates are suffering from the economic effects of the Covid-19 pandemic, more means to finance their spending needs are being sought through borrowing.
Green bonds, being bonds issued to finance climate-related or environmentally friendly projects, as well as sukuks, or Islamic Sharia-compliant bonds, are making the headlines in Egypt with the news of the oversubscription of Egypt’s first-ever green bond issue being pointed to by the Ministry of Finance and the Talaat Moustafa Group’s sukuk issue, the first in Egypt, also having its debut on the local stock market last week.
The two new financing measures have come as other sources of traditional financing are being exhausted. Resorting to international financial organisations like the World Bank and the International Monetary Fund (IMF) has noticeably increased since the outbreak of the pandemic, with more than 70 countries, Egypt included, applying for rapid credit facilities to face coronavirus-induced economic challenges.
However, most of these facilities are linked to reform conditions that come at a social cost. And while issuing bonds locally or internationally is a means of raising funds that Egypt has been using for a while, the high yields it has had to pay investors in these instruments has also added much to the country’s fiscal burdens.
International investors have pumped billions of dollars into Egypt’s sovereign debt market since the devaluation of the Egyptian pound in 2016. The overall value of foreign holdings of Egyptian sovereign bills and bonds rose to $16.9 billion by the end of August from $14.1 billion a month earlier. Egypt pays the second-highest yield on sovereign bills and bonds among the world’s emerging markets.