Egypt is advancing its fiscal sustainability agenda by leveraging a vast Red Sea parcel in Ras Shukeir to back its second sovereign sukuk offering, the Ministry of Finance announced on June 12. Spanning 174 million square meters, the strategic coastal land—one of the largest state-owned plots—will serve as the underlying asset in a lease-based (ijara) sukuk structure, according to Business Monthly’s interpretation of the announcement.

Unlike traditional debt instruments, ijara sukuk comply with Islamic finance principles by generating investor returns through rental payments rather than interest. The model aligns with ethical investment standards and allows Egypt to attract lower-cost financing while retaining asset ownership.

According to the Finance Ministry, the government plans to partner with state financial entities, like the Finance Ministry, and other sovereign economic authorities to optimize the asset’s development. This includes debt-equity swaps in which budgetary bodies reduce their liabilities through joint investments with state-affiliated institutions. The approach aims to ease debt burdens, lower servicing costs, and stimulate investment-led growth without liquidating national assets.

In parallel, the Ministry outlined plans for debt-for-investment swaps involving state financial entities. Under this model, public financial institutions will receive equity stakes in joint ventures developing the Ras Shukeir land in exchange for debts owed by budgetary bodies. These ventures will focus on tourism, services, and real estate—transforming idle land into productive economic zones while reducing debt-servicing obligations.

Officials expect the program to free up budgetary space for greater social investment and reinforce Egypt’s appeal to global investors seeking Sharia-compliant instruments with long-term economic value.

Lease sukuks

According to an IMF paper by Andreas Jobst, al-ijarah leasing notes—an asset-based Islamic finance tool—provide funding through rental payments over a fixed term, typically tied to the lessee’s future repurchase commitment. The financier acquires the asset either directly from the borrower in a sale-leaseback arrangement or from a third party at the borrower’s request, then leases it under a schedule of installment payments. While the lessee pays for the asset’s use, the financier retains legal ownership and is responsible for ownership-related costs.

In Egypt’s forthcoming issuance, the 174 million-square-meter Red Sea land parcel will serve as the leased asset. It will remain state-owned, generating returns through rent rather than sale—aligning with Islamic finance principles and preserving national assets.

This sukuk forms part of Egypt’s broader push to diversify funding instruments. In October 2024, Finance Minister Ahmed Kouchouk announced plans to issue EGP 5–10 billion in sukuk and green bonds in the second half of FY2024/2025, following a September investor roadshow in London aimed at reestablishing Egypt’s international presence in sustainable and Sharia-compliant finance.

Budget reform 

Egypt’s fiscal consolidation efforts continue to take shape following Cabinet approval of the FY2025/2026 draft budget in March. The plan projects EGP 3.1 trillion in revenues and EGP 4.6 trillion in expenditures, targeting a primary surplus of EGP 795 billion (4% of GDP) and a reduction in budget sector debt to 82.9% of GDP.

Finance Minister Ahmed Kouchouk emphasized increased allocations for health, education, social protection, and productive sectors. Spending on food subsidies, pensions, and export support also rose, reflecting constitutional obligations and development priorities. Despite anticipated revenues of EGP 3.1 trillion, the overall budget deficit is expected to reach EGP 1.5 trillion (approximately $30 billion).

According to the Central Bank of Egypt, external debt declined to $152.9 billion by end-June 2024—down 7.2% year-on-year. However, the current account deficit widened significantly to $20.8 billion, driven by a 27.0% rise in the trade deficit, a modest 1.3% increase in the investment income deficit, and a 34.5% drop in the services surplus. Net unrequited transfers inched up by 0.5%.

Strategic coastal projects reinforce vision

The government’s fiscal roadmap is reinforced by transformative real estate partnerships aimed at unlocking the economic potential of coastal land. A February 2024 agreement with Abu Dhabi’s ADQ to develop Ras El Hekma brought in $35 billion—Egypt’s largest-ever foreign direct investment. It was followed by SouthMed, a coastal urban development venture with Talaat Moustafa Group.

These projects reflect a strategic pivot: treating Egypt’s coastlines not merely as leisure destinations but as anchors of urban, year-round economic activity. “It helps in transforming these lands into productive, service-oriented, tourism, and real estate projects—generating sustainable returns and job opportunities for youth,” the government stated.