Ministry of Finance moves to launch the first sovereign sukuk

The Syrian Ministry of Finance announced the start of the necessary preparations for the issuance of sovereign sukuk for the state, in a step aimed at providing real and non-inflationary sources of financing for the general budget.

The Ministry explained, through its channel on the "Telegram" application, that the Minister of Finance, Mohamed Youser Barnieh, while chairing a meeting of the Securities and Sovereign Instruments Committee at the Ministry, discussed the draft strategic plan for the launch of the first issuance of these instruments in the country's history, in a step that the transitional government sees as a key axis to address the budget deficit for 2026 amounting to about $1.8 billion (equivalent to 5% of GDP), while stressing that the option of cash financing and currency printing has been ruled out altogether to avoid any pressures New inflation.

Non-inflationary budget financing

The ministry said that this step comes in the context of the transformation efforts it is working on to provide real and non-inflationary sources of financing for the general budget of the state, stressing the need to complete the preparation of the plan and consult on it with the concerned authorities, especially the Central Bank of Syria.

 The Minister of Finance explained that financial instruments are considered a public good that benefits the national economy, adding that the plan is based on the gradual expansion of issuances and the transition to longer maturity periods, with the aim of building a benchmark index for the returns of government securities in the foresee and medium term.

Bernier stressed the importance of achieving fiscal sustainability that is able to finance the state's current and future obligations without causing financial imbalances, while maintaining deficit and financing levels that can be managed responsibly.

Finance coordinates with the Central Bank and the Damascus Stock Exchange

On the executive side, the ministry is reviewing the technical draft in direct coordination with the governor of the Central Bank of Syria to ensure that it is compatible with current liquidity levels, in addition to a comprehensive modernization plan for the Damascus Stock Exchange that includes automating clearing and increasing weekly trading days to accommodate the movement of sukuk.

The Ministry confirms that the schedule of issuances will be adopted gradually to ensure that the State fulfills its obligations without causing any disruption in the general financial structure, in order to ensure the sustainability and effectiveness of financing in the coming years.

Economist Tammam Debo told "Syrian News" that the government seeks to employ sukuk as a safe alternative that allows the mobilization of local savings and hoarded cash blocks outside the banking system, allowing to cover expenses and investments without increasing the money supply.

The gradual issuances aim to create a reference return index that helps banks and financial institutions price their services and loans according to realistic risks, in addition to enabling the Central Bank of Syria to activate its tools through open market operations to control liquidity in the market, according to Debo, who explained that  the sukuk  are based on the principle of partnership and linking the yield to the actual performance of real projects, unlike traditional bonds based on fixed interest.

What are Sovereign Sukuk?

Sukuk are Shariah-compliant financial instruments that grant the holder ownership of a share in an existing or under construction project, or in a specific investment activity, and  are based on their association with real assets, as they are issued only against actual assets that form the basis on which they are based, unlike traditional bonds that are based on lending for a fixed return.

The various entities resort to issuing sukuk to finance their projects according to the principle of partnership, so that the holders of sukuk share the profits and losses with the issuer, according to a percentage determined at the time of contracting, and the investors receive their share of the profits according to the agreed percentage, and they also bear the losses within its limits, based on the jurisprudential rule "sheep by gram", which means that those who deserve profit bear the risk.

Difference Between Islamic Sukuk and Treasury Bonds

Islamic sukuk and treasury bonds are among the most important sovereign debt instruments that governments resort to to cover deficits and finance projects, as is the current trend of the Syrian Ministry of Finance, but the difference between them is fundamental from a legal and economic point of view.

Bonds are based on an interest-bearing loan that is considered usury, while sukuk is based on real ownership and an investment partnership that is linked to actual assets or benefits, while bonds provide a fixed and guaranteed return in which the investor does not incur any operational risks, the sukuk ties the return to the actual profits of the project, according to the rule of sheep in gram.

Bonds are issued to obtain liquidity, which are often spent in current items without linking to a productive asset, which makes them vulnerable to an increase in the money supply and inflation, while sukuk is only issued in the presence of a real physical asset such as stations, roads, or ports, and is priced according to the productivity of that asset, which protects it from interest rate fluctuations and makes it a non-inflationary instrument that supports the productive capacity of the economy.