With some USD4 to USD64 trillion dollars wiped off US, European and global stocks in the two days after President Donald Trump’s declaration of “economic independence” and the imposition of a range of tariffs starting with a baseline 25% on steel and aluminium imports to the US, 10% tariffs for certain countries and a range of tariffs for other countries, the second-term Trump administration has disrupted the existing world trade, investment and business order. There are no signs of a retreat from this unilateral and isolationist US playbook which will impact every corner of the world including the US. Rao Farid Khan, Lead Legal Counsel and Head of Claims and Recoveries at ICIEC, considers the potential fallout for the credit and investment insurance industry and how the Corporation is positioning itself as a unique stabiliser and enabler of global and intra-OIC trade and investment.

President Donald Trump’s recent return to office and the policy shifts of his current administration have once again marked a critical juncture in the global economic landscape. Building on the disruptive strategies of his previous term, the renewed focus on protectionist trade policies, strategic decoupling, and a retreat from multilateral cooperation have intensified global economic uncertainty.

Actions such as renegotiating international trade agreements, reasserting national sovereignty over global institutions, and limiting U.S. engagement in global initiatives continue to challenge the foundations of international economic governance. These developments hold significant implications for global trade, investment flows, and credit insurance, potentially affecting the role and operations of multilateral institutions like ICIEC.

As a specialized multilateral insurer dedicated to promoting investment and trade among its 50 member states from the Global South, ICIEC now stands at a critical juncture. The current geopolitical and economic climate presents both elevated risks and profound strategic opportunities. The reinstatement of trade protectionism under Trump 2.0, marked by tariffs on imports from China, Europe, and various developing economies, has disrupted global supply chains and increased transaction costs. These changes have retendered cross-border commerce more unpredictable and significantly heightened the risk of defaults in international transactions. For the credit insurance industry, including ICIEC, this has led to a surge in demand for trade credit insurance, particularly from exporters in emerging markets who are increasingly seeking protection against non-payment risks and contractual disruptions.

In response to the current market challenges, ICIEC is uniquely positioned to play a crucial role in stabilizing and enabling trade. By enhancing its short-term credit insurance offerings and expanding its technical assistance services, ICIEC can develop robust credit insurance products tailored for high-risk markets, including the United States. This will provide vital support to exporters from its member states, helping them to remain resilient in the face of market volatility. Through these efforts, ICIEC not only fulfils its developmental mandate but also establishes itself as a dependable partner in an increasingly unpredictable trade environment.

Moreover, the U.S. retreat from key multilateral frameworks, such as the Paris Climate Accord and the World Health Organization (WHO), under President Trump has weakened the foundations of international cooperation. The diminished role of the United States in global governance has created institutional voids, particularly in areas such as public health and climate change. For multilateral insurers, this fragmentation imposes coordination challenges, undermining collective responses to systemic risks. However, this also presents a unique opportunity for ICIEC to assert leadership within its member states by deepening regional integration and fostering South-South cooperation.

ICIEC’s mission, grounded in Islamic principles of financial and insurance intermediation, allows it to offer a compelling alternative to the nationalist and isolationist rhetoric that has gained prominence. By promoting inclusive trade and investment models that prioritize sustainable development, ICIEC can emerge as a beacon of multilateralism and collaborative resilience amongst its member states. ICIEC’s ability to foster intra-OIC economic ties through innovative insurance mechanisms will be pivotal in offsetting the impact of global fragmentation.

Simultaneously, the Trump administration’s aggressive posture toward geopolitical hotspots such as Iran and China, has contributed to heightened regional instability and a more precarious global investment climate. These developments increase demand for Political Risk Insurance (PRI), which offers protection against risks such as expropriation, political violence, currency inconvertibility, and contract frustration. ICIEC can respond to this rising demand by broadening its PRI offerings and enhancing its insurance products tailored to infrastructure, energy, and social development projects in member states. By engaging in co-insurance and reinsurance partnerships with other Export Credit Agencies (ECAs) and private reinsurers, ICIEC effectively manages largescale exposures while supporting transformational projects that align with national development priorities.

The third pillar of the IsDB Group Strategic Realignment 2023-2025 focuses on driving green economic growth. By supporting climateresilient infrastructure projects and offering insurance solutions for green Sukuk and ESG-compliant investments, ICIEC facilitates sustainable development while managing emerging climate-related risks. This aligns with the strategic objective of driving green economic growth, as it promotes investments in sustainable and environmentally friendly projects, thereby contributing to the overall goal of green economic development. ICIEC’s Sukuk Insurance Policy, alongside its Non-Honouring of Sovereign/Sub-sovereign Policy, offers a framework through which it can mobilize capital for environmentally responsible projects and attract private sector participation in sustainable investment.

Perhaps the most defining feature of Trump-era economic policy is its unpredictability – a trait that intensifies demand for comprehensive risk mitigation instruments. In such a volatile global environment, credit and political risk insurance are not mere tools of financial prudence; they are essential components of resilience and continuity for governments, corporations, and SMEs alike. ICIEC can respond to this need by offering bundled insurance solutions that address both commercial and political risks, particularly in high-volatility markets. ICIEC’s ability to support small and medium enterprises (SMEs), which often lack the capacity to absorb shocks, will be critical in maintaining inclusive trade and investment flows.

Further, ICIEC can expand its capacity-building initiatives to enhance the risk mitigation capabilities of stakeholders in member states, thereby contributing to greater institutional and economic resilience.

The reality of Trump’s presidency and its current policies introduces new layers of complexity into the global trade and investment landscape, with potential trade wars, a NATO rethink, and the deportation of millions of migrants. Nevertheless, within this turbulence lies an opportunity for ICIEC to redefine its role and expand its influence. By embracing innovation, reinforcing strategic partnerships, and aligning its offerings with the values and aspirations of its member states, ICIEC can rise as a leader in the global credit and investment insurance domain. Its ability to navigate uncertainty while remaining committed to sustainable, inclusive, and ethical development will determine its trajectory in the years to come.

As the world continues to fragment and global leadership remains in flux, institutions like ICIEC are not only tasked with protecting trade and investment flows but also with enabling them in ways that are just, resilient, and aligned with long-term development goals. By scaling up support for SMEs through agile credit insurance, diversifying political risk coverage, deepening regional collaboration, and pioneering climate-aligned insurance instruments, ICIEC can help build a more equitable and sustainable global economy. The path forward demands strategic foresight, bold innovation, and a steadfast commitment to the developmental aspirations of the IsDB Group member countries. In this mission, ICIEC is not merely an insurer—it is also a catalyst for stability, growth, and shared prosperity.

Lotfi Zairi, Associate Manager, Operations, Sovereign Risks at ICIEC, considers the important supportive and technical role that the IsDB Group and ICIEC could play in developing the Islamic finance industry in Algeria by enhancing its existing cooperation in trade and project finance and credit and political risk policy cover for Algerian entities through the Group’s Country Engagement Framework (CEF) and ICIEC’s pioneering Green Sukuk Insurance Policy.

Economic Context

In last July 2024, Algeria has gained back its position within the uppermiddle income category under the World Bank’s country income classification. The merits of this classification invoke the advances made by the country in “economic and human development, investing in infrastructure projects and introducing redistributive social policies that alleviated poverty and significantly improved human development indicators.”

A recent World Bank report highlighted Algeria’s “strong” economic performance in 2024. Growth in the first half of the year reached 3.9 percent, driven by “resilient” agricultural output.

Algeria is the largest country in Africa and the third largest economy in the Arab world. Aiming at addressing the predominance of the hydrocarbons in the economy which counts for almost 95 % of exports and 14% of GDP, Algeria has taken major steps to diversify its sources of revenues and improve employment prospects since 2020.

New laws on Hydrocarbons, on Investment, and on Money and Credit have been promulgated, lifting restrictions on the foreign ownership of domestic firms, to boost foreign and domestic investment. The country has clearly adopted a transition strategy towards private sector-led growth, rationalized public-spending, optimized imports and further developed non-hydrocarbon exports.

The government is optimistic about the economic and financial situation, guided by an expected increase in the exports of goods and hydrocarbons and a forecasted growth in non-oil economic activity around 5% during the next three years 2025-27. The 2025 budget amounts to a projected USD126bn with 4.5% growth forecast compared to 4.2 percent in 2024. Public spending includes the revitalization of the oil sector both in terms of exploration and recovery. In addition, the 2025 Budget includes several infrastructure projects and other socially oriented sectors such as health, education, transportation, housing, and support for vulnerable communities accounting for 35.3%.

The country has brought its debt down from the highs of recent years and now has relatively low levels of external debt. To optimize its external debt, the government is exploring new funding channels to cover the growing budget deficit estimated at USD62bn, compared to USD45bn in 2024. In that respect, Algiers is arranging to promote the sustainable financing of strategic projects and to stimulate local investment. The Treasury is authorised to issue sovereign bonds, to let investors participate in the financing of infrastructure programs.

Islamic Finance Sector Development

While the international market offers significant potential, the government is focusing in the first instance on reintegrating the USD90bn parallel market, a sizeable shadow market that is hindering growth. The Islamic Finance industry is seriously considered by the Government for that purpose, counting on its efficient role in achieving a maximum financial inclusion of Muslim populations. Developing the Islamic banking sector, Takaful and Islamic Capital Market seems to be the battle horse in that respect.

The Finance Ministry expressed firm intention to issue Sukuk in early 2025 as part of the country’s budget. In that regard, Algeria can benefit from the services of ICIEC, which offers a Sukuk Insurance Policy (SIP) in full compliance with the Islamic Shariah.

Sukuk is an efficient financial instrument for resource mobilization from the international capital market, in full compliance with Islamic finance principles. Member Countries are using it for the funding of their infrastructure projects and other developmental initiatives including renewable energy and environment friendly projects. For these latter categories, ICIEC has also developed a Green Sukuk Insurance Policy. As such, the Sukuk Insurance Policy will contribute to the economic and social development of Member Countries.

The development of the Sukuk Insurance Policy has been widely appreciated by Member Countries as well by Islamic finance organisations, financial institutions and international reinsurance companies. It is expected to create an additional flow of Sovereign Sukuk issuances in the Islamic capital market based on the ICIEC third-party guarantee structure, in full compliance with Shariah principles.

Thanks to its AA- credit rating and to its remarkable track record in covering the risk of Non-Honouring of Sovereign Financial Obligations, ICIEC can provide a strong credit enhancement to Sukuk issued by Member Countries such as Algeria, lowering their dividend and cost, and facilitating their subscription across the international capital market.

IsDB Group Technical Assistance

The government is preparing a comprehensive legal framework for the Shariah-compliant finance industry, aiming to position Algeria as a regional hub for sukuk issuance within African, Arab, and European free trade zones, thereby increasing its financial importance in the Algerian economy.

In 2021, the Islamic Development Bank Institute (IsDBI) and the Central Bank of Algeria signed a technical assistance agreement valued at USD270,000 to develop the legal and regulatory framework for Islamic banking in Algeria. This project, once completed, will lay the foundation for the development of Islamic banking in Algeria. The technical assistance is in an advanced stage of implementation, and once completed, Algeria will have a comprehensive framework conducive for the development of Islamic banking activities and with the required tools for the central bank and regulators to supervise the system.

Furthermore, a second technical assistance grant of USD272,000, signed in 2022, is being provided to the Ministry of Finance to assist the country in issuing sovereign Sukuk. Algeria is trying to tap the Islamic Capital Market with sovereign Sukuk, and this technical assistance is intended to update the legal framework to accommodate Sukuk structures and to guide the country through the process of Sukuk issuance.

In addition, in collaboration with the Government, the Islamic Development Bank Group launched the first Country Engagement Framework (CEF) for Algeria in the period 2025-2027. This framework is designed to develop a short-term country engagement strategy and interventions in support of Algeria’s development programme.

Under its Re-aligned Strategy 2023-2025, the IsDB will support priority development projects and initiatives under two strategic pillars:

A. Enhancing the competitiveness of the economy and the private sector for an efficient renewal and diversification of economy
B. Partnering for capacity development and south-south cooperation

The envisioned CEF would provide a robust platform that would enable not only the IsDB, but also the Group entities to align and intervene, in complementarity, to contribute to the implementation of Algeria’s Development objectives. The CEF would thus be at the nexus of (i) national development priorities as highlighted in the Government Action Plan, and (ii) IsDB’s realigned strategy.

Pillars 1 and 2 complement each other and include both hard and soft interventions for the comprehensive development of the pre-requisites for Algeria’s Economic Development Programme. In addition, they will be supported by the cross-cutting pillars of:

• Islamic Finance.
• Women & Youth Empowerment.
• Climate Change adaptation and mitigation.
• Capacity Development to address the needs.

ICIEC Support to the Economy

ICIEC has insured a total amount of USD10 bn in Algeria since inception. ICIEC has facilitated USD5.3bn for imports of strategic goods, USD3.2bn for exports, and USD1.5bn for foreign investment inflows.

ICIEC provides reinsurance support to CAGEX, the Algerian national ECA, for the export and domestic treaties. To boost Algerian exports, CAGEX and ICIEC are closely cooperating in offering required support to Algerian Non-Oil exports allowing them to diversify the Algerian economy.

Furthermore, ICIEC has been insuring several Jordanian pharmaceutical companies having established separate legal entities in Algeria. This allowed the transfer of know-how especially Jordan’s remarkable comparative advantage in the pharmaceutical sector.

Furthermore, it helped to accommodate the market needs in terms of good quality generic products at affordable costs and helped at later stage to create a good platform for Algerian pharmaceutical exports to African countries.

Lately, ICIEC insured financing provided by ITFC and a pool of commercial banks to STEG Tunisia to import gas from Sonatrach, Algeria. The cooperation with Algeria is characterized by the close coordination between ICIEC and CAGEX under the framework of the AMAN Union, which is an association of commercial and non-commercial credit insurance providers in the OIC member countries. In this regard, ICIEC, as the responsible entity for managing the AMAN Union Secretariat General during the years 2023-2024, organized in partnership with CAGEX the 14th Aman Union Annual Meeting in Algiers, in December 2024.

In addition, ICIEC catalysed a Foreign Investment in Algeria for the expansion of Tosyali Steel Factory, a large steel production project promoted by Turkish Investors.

ICIEC Support to Tosyali Steel Project -Algeria

The collaboration between Tosyali Holding and ICIEC demonstrates the potential for successful large-scale industrial projects supported by robust financial and insurance frameworks. This partnership not only benefits the involved parties but also serves as a model for other companies and investors looking to explore opportunities in emerging markets, taking advantage of ICIEC support in terms of risk mitigation as well as capacity building.

In 2018, Tosyali Holding, a prominent Turkish steel manufacturer, received substantial support from the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC). ICIEC issued a 5-year equity investment insurance policy to back Tosyali Holding’s ambitious 3rd phase of development for its steel factory project in Algeria, valued at USD 450 million.

This project represented the largest foreign investment ever made by a Turkish company, highlighting Tosyali Holding’s significant role in the global steel industry. It was the most substantial Foreign Direct Investment (FDI) in Algeria outside the petrochemical sector, underscoring its strategic importance for the country’s industrial diversification.

The support from ICIEC not only provided financial security to Tosyali Holding as a foreign investor but also demonstrated a high-level confidence in the capability of quality investors from the Organisation of Islamic Cooperation (OIC) to execute large-scale international projects. This collaboration marked a landmark milestone in strengthening economic ties between Türkiye and Algeria, paving the way for future investments, industrial growth, regional economic integration and more Intra-OIC Investments.

By securing the production of 70% of Algeria’s building materials needs, Tosyali steel project has largely contributed to reducing the country’s imports of steel, enabling remarkable currency savings. In addition, the project has provided over 4,000 direct jobs and thousands of indirect jobs.

Tosyali Holding initiated its Algerian operations in 2013 through affiliate company Tosyali Iron Steel Industry Algerie A.Ş. (Tosyali Algerie). The complex covers 4 million square meters and has easy access to the Mediterranean Sea.

Phase 1 included a 1.5 Mt/y EAF steel meltshop and a 1.2 Mt/y rolling mill. The initial production capacity of reinforcing bar (rebar) was 1.2 million tons and represented 28% of demand at this time. Like reinforcing bars, wire rods are in high demand and a vital product for development.

Phase 2, which was completed in 2015, added a 0.5 Mt/y wire rod mill, which met 60% of the total needs of Algeria at that time. Wire rods are used for the manufacture of dozens of products such as wire mesh, wire, nails, and screws.

The third phase of development started in 2018 aimed at completing the integration of iron ore into the finished product process. In this phase, Tosyali Algerie set up a 4 Mt/y iron ore plant and a 4 Mt/y pellet production unit to transform iron ore fines into iron oxide pellets.

Phase 4 of the Tosyali Algerie steel complex, a DRI-EAF integrated flat steel production facility, began in 2022. In July 2021, Tosyali Holding awarded Midrex and its partner Paul Wurth a contract to build a second DRI plant at the Tosyali Algerie steelworks. The new DRI plant is to produce 2.5 million tons of HDRI and CDRI with the capability to operate with increased percentages of hydrogen in the future. HDRI will be fed via a hot transport conveyor to the new 2.4 Mt/y EAF melt shop, providing greater EAF productivity and energy savings. During melt shop outages, the MIDREX Plant can continue producing CDRI up to full capacity.

Algeria’s Islamic Banking Voyage of Discovery

Despite being a founding member of the IsDB and a member of ICIEC since 1996, Algeria is a relative latecomer to the Islamic finance industry per se. The country is keen to open up to the Islamic finance industry and the Ministry of Finance is mooting the issuance of Algeria’s debut sovereign Sukuk reportedly in First Half 2025. As Mushtak Parker maintains the potential for and the synergies between Islamic finance and a people-centred sustainable development agenda in Algeria are huge, particularly in the issuance of Sukuk for infrastructure and budget rebalancing, raising funds through Murabaha syndication for trade finance, and through the utilisation of ICIEC’s unique Shariah-compliant credit and investment insurance solutions in a world beset with growing uncertainties.

Algeria, a founding member of the OIC and the IsDB, is now poised to embrace the estimated USD5 trillion global Islamic finance industry.

Hitherto, the country has seen a modest but growing level of activity mainly through the IsDB, ICIEC and through its growing number of Islamic financial institutions including Al Baraka Bank Algeria and Al Salam Bank Algeria, and several Islamic Banking Windows of public and overseas banks such as Crédit Populaire Algérien (CPA), Exterior Bank of Algeria (BEA), the National Bank of Algeria, ABC Bank-Algeria, Banque de Dévelopment Locale (BDL) with its Islamic window Elbadil, and the Bank of Agriculture and Rural Development (BADR).

This follows the proactive policy support from Algerian President H.E. Abdelmadjid Tebboune and his government to embrace and promote Islamic finance in the country’s development agenda, which has manifested in the fact that Algeria is the host country of the 2025 Algeria key islamic finance indicators 2025 IsDB Group Annual Meetings on 19-22 May in Algiers along the theme “Diversifying Economies, Enriching Lives.” H.E. Mr. Abdelkrim Bouzred, Minister of Finance and current Chair of the IsDB Board of Governors, emphasized: “This event is of great significance for Algeria, offering an important opportunity to elevate its standing on the global economic stage by highlighting the reforms implemented and showcasing the country’s strengths in cooperation, investment, and sustainable development.”

Catching Up

The reality is that Algeria as an Islamic finance market has a lot of catching up to do in all the facets of the industry. The good news is that there is a new-found realisation in the government of President Tebboune that Islamic finance has much to offer Algeria in its development journey.

To facilitate this, the government has introduced several pieces of enabling legislation based on parity with the conventional finance sector over the last few years. The main legislation was the Finance Law 2018 which for the first time saw the facilitation of several Islamic banking products.

In October 2024, for instance the government introduced Islamic real estate and mortgage finance regulations which has allowed Algerians wishing to access Shariah-compliant mortgages for their house and commercial property as their financing choice. The government also started in 2022 to licence family and general Takaful operators and introduced legislation to facilitate Shariah-compliant auto financing products.

Islamic finance deposits according to the finance minister H.E. Laaziz Faid had reached DZD794 billion at end June 2024. In December 2024, he confirmed that the finance ministry was working on a Sukuk Issuance Framework and a new law to facilitate the offering of the country’s maiden sovereign Sukuk issuance, aimed at financing projects and infrastructure. funds for its infrastructure projects. Quoted by the local Aljumhuria newspaper, the Minister said that the plan was to issue a debut Sukuk in First Half 2025 to complement the funding needs of the 2025 National Budget, to attract a wider base of foreign investors by diversification the source of funding and investor base, and to boost confidence in the local capital market.

An important development also was in 2021 when the Bank of Algeria (the central bank) signed an MoU with the Bahrain-headquartered Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) to collaborate to enhance the Islamic finance industry in Algeria.

Financial Inclusion

But the most important recent development is the repeal of existing legislation to make way for the introduction and adoption of the 2025 Finance Law which includes provisions for regulating Islamic consumer finance products in sectors such as tourism and hospitality, education and healthcare using Murabaha, Ijara Muntahiya Bil Tamleek (hire purchase) and Diminishing Musharaka structures targeting financial inclusion objectives, SMEs, real estate and infrastructure projects, and also reincorporating an estimated USD90bn parallel market, a sizeable shadow market through Islamic banking products and services.

The Islamic Banking Window (IBW) of Crédit Populaire Algérien (CPA), for instance had over 70,000 customer accounts at end 2024 and customer savings of DZD47 billion. According to CPA these initiatives point to the fact that the Islamic finance industry is entering a new phase of offering tailored solutions to customers in key sectors of the economy.

The proposed debut sovereign Sukuk has also been approved under the 2025 Finance Law. According to Al Majalla newspaper, the debut Sukuk issuance is likely to be denominated in local currency DZD. A major problem with all nascent Islamic finance markets is the dearth of reliable and regular market data and whether the data includes the official figures and the estimates for the unofficial black economy. The current Islamic finance data landscape of Algeria is at best sparse and fragmented, and information is ad hoc, dated and sometimes exaggerated depending on the source. This makes it difficult to assess the state of the Islamic finance sector in the country. Date disclosure and transparency is really the task of the financial regulator, the Bank of Algeria, to which all authorised and licenced financial institutions obliged to report to.

According to the Bank of Algeria in a February 2024 report, Islamic banking deposits rose by more than 14% in the last two years, from around USD4 billion in 2022 to USD4.7 billion by June 2023, when there were 12 licensed providers operating in Islamic banking (six state-run,six private providers). There was no delineation of whether they were dedicated or IBWs.

Algeria’s Islamic finance journey needs to transform from a fragmented approach to a more structured one, in which policy making, enabling legislation, various frameworks and guidelines, regulatory standards, acceptance and compliance with international standards, disclosures and clarity of purpose should be paramount. Industry bodies such as IFSB, IILM, AAOIFI and others, together with the IsDB Group could play a crucial role in market education and technical expertise to ensure better understanding of and Shariah certainty and confidence in the industry, which after all has a large natural constituency for Islamic finance products.

Balancing Egypt’s Dynamic Economic Landscape with its Persistent Macroeconomic Challenges

Economic Overview

The Egyptian economy demonstrated robust growth in FY2021/22, recovering from the COVID-19 pandemic. However, recent data suggests a slowdown in economic growth in Q3 FY2023/24, reaching a low of 2.2%. Nevertheless, the outlook for FY2024/25 remains positive, with projected growth of 4.2% driven by increased investment, a recovery in the manufacturing sector, and the anticipated end of the Gaza conflict.

The government plans to cut spending in response to the economic crisis. This includes delaying state projects that require significant foreign currency funding and reducing expenses related to travel, training, and conferences for officials. The government focuses on large-scale privatisation and asset sales as part of its economic stabilisation measures. These measures aim to address balance-of-payment stresses and stabilize the economy.

The Egyptian government sealed its largest investment deal with a consortium led by Abu Dhabi Developmental Holding Company (ADQ), one of the UAE’s sovereign wealth funds, for the development of Ras El Hikma city, spread over more than 170 million square meters of land on the Mediterranean coast. The deal is expected to be risk-positive, bolstering the country’s FX reserves and ensured adequate buffers for Egyptian authorities to devalue the pound, or at least move to a more flexible exchange rate regime, thus likely satisfying International Monetary Fund (IMF) requirements for a new and enlarged financing package. However, the deal is unlikely to ensure a sustainable turnaround for Egypt’s economy and needs to be complemented by long-awaited structural reforms.

ADQ will invest USD35 bn in Egypt that will retain 35% of the project’s profits. The project’s investment value could reach USD150 bn and may generate millions of employment opportunities, according to Egypt’s prime minister. ADQ will develop Ras El Hikma city that will include a business district, residential and commercial space, hotels and tourism resorts, healthcare and education facilities, and a free economic zone for IT industries and logistics hubs, among others.

Out of the USD35 bn being paid to Egypt, USD24 bn consists of new fund transfers (representing the consortium’s acquisition of development rights) and USD11 bn consists of existing UAE deposits at Egypt’s central bank that will be transferred to local currency and invested in prime projects. The Egyptian authorities also announced they are setting the ground for similar investment deals, notably the Ras Gamila land south of Sinai on the Red Sea coast, potentially to Saudi or Qatari investors.

The World Bank Group has approved a new Country Partnership Framework (CPF) for Egypt, which aligns with the Government of Egypt’s Sustainable Development Strategy and the National Climate Change Strategy. The new CPF intends to strengthen Egypt’s role in regional integration, which has positive implications for Egypt and potentially the broader region through enhanced regional trade and greater connectivity in infrastructure, transport, energy, and labour.

Egypt and the International Monetary Fund (IMF) announced on March 6, 2024, a staff-level agreement on a set of economic policies and reforms needed to complete the first and second reviews under the Extended Fund Facility, the amount of which is being raised to USD8 bn subject to IMF board approval. Noting that the IMF report in August 2024 indicated that program performance for the third review was satisfactory.

The Memorandum of Economic and Financial Policies for Egypt included in the IMF report in August 2024, included that the government will establish a repayment strategy to reduce arrears to international oil companies. The Egyptian General Petroleum Company (EGPC) has accumulated payment arrears on supply contracts of about USD, denominated in U.S. dollars. The buildup of arrears reflects several factors including foreign exchange shortages, elevated cost of borrowing, a cyclical downturn in the domestic production of gas, higher domestic consumption reducing the scope for gas exports, significant price deviations from cost recovery, and increased subsidies from EGPC to the electricity sector. The government is developing a repayment strategy to ensure that no new arrears are accumulated and that existing arrears are cleared, noting that an anticipated payment before the end of 2024 would lower the arrears to around USD3.5–3.8 bn.

Moreover, the authorities plan a series of actions to improve EGPC’s financial situation over time. The authorities raised electricity prices by 7–20 percent in January 2024 and retail fuel prices in March by 8–20 percent. While its financial position gradually improves, EGPC has the capacity to fully service its obligations on time due to an anticipated increase of EGP10-11bn of monthly revenues from recent and upcoming energy price hikes.

It was noted in the IMF August 2024 report that the program has a target to have a Ceiling on Government Guarantees. The Ministry of Finance will report to the IMF the stock of guarantees and such data will show guarantees on domestic currency and foreign currency borrowing by Economic Authorities (EGPC, GASC, Transport, NUCA, other) and state-owned enterprises (NIB, Electricity, other). It is worth noting that Guarantees issued on behalf of EGPC account for about half of government guarantees.

The increase of the IMF aid package to USD8 bn from USD3 bn is risk-positive for the economy and is likely to help draw in further foreign investments. Egypt is likely to get USD55 bn-USD60 bn in the next few years from the Ras El Hikma deal, the IMF, the EU, the World Bank and others. In June, Egypt and the EU signed 35 agreements and memorandums of understanding worth EUR67.7 bn (around USD72.4 bn at the time of signing) aimed at intensifying private sector investments in Egypt.

It is worth noting that on November 1, 2024, Fitch Ratings has upgraded Egypt’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B’ from ‘B-’, citing improved external finances supported by significant foreign investments and enhanced policy measures. Key developments include the Ras El-Hekma investment, which contributed USD24 bn, and a substantial increase in non-resident holdings of domestic debt.

Also, S&P Global Ratings has affirmed Egypt’s credit ratings at B-/B, maintaining a positive outlook on October 21, 2024, instead of stable outlook, highlighting the country’s progress in implementing reforms since the liberalization of its exchange rate regime in March.

The Inflation Challenge

Inflationary pressures persist, with an average forecast of 27% YoY in H2 2024. The Central Bank of Egypt (CBE) is expected to maintain a tight monetary policy stance to curb inflation. A significant decline in inflation is anticipated in early 2025 due to base effects, which may prompt the CBE to ease monetary policy.

The Central Bank of Egypt (CBE) policy rate reached 27.75% since March 2024, and 1,900 basis points since March 2022. And it has been stable ever since. The CBE’s policy rate hike brings monetary policy nearer to neutral after an extended period of negative real interest rates. The tightening of fiscal policy and the slowdown in infrastructure spending agreed with the IMF should over time reduce inflation and support debt sustainability while fostering an environment that enables private sector activity and restore investor confidence.

To alleviate the pressures on purchasing power, the Egyptian authorities also decided to increase minimum wages and spending on social safety programs. Government spending on interest payments, social benefits and salaries remains high and will likely offset to some extent intended investment and other spending restraints and the impact of revenue-boosting developments. Higher debt servicing costs are likely to lead the fiscal gap to peak at 7% of GDP in fiscal year 2024–25.

A Widening Current Account Deficit

Egypt’s current account deficit widened in the fiscal year FY2023/2024, which ended on 30 June, to record USD20.8 bn, against USD4.7 bn in the same period of the previous fiscal year, primarily due to the increase in trade deficit by 27.0% and the decline in Suez Canal transit receipts by 24.3%, according to the latest figures published by the Central Bank of Egypt (CBE). This performance was led by the shift of the oil-trade balance into a deficit of USD7.6 bn from a surplus of USD410 mn, as the decline in oil exports surpassed that of oil imports, according to the CBE.

Egypt’s current account balance is sensitive to import prices and the country’s ability to enhance gas exports to Europe given the current high domestic gas demand. Also, a pick-up in FDIs likely rests upon the disbursement of IMF loan tranches that would send positive signals to the investor community and entice further GCC inflows. The current account deficit is projected to narrow to 4.2% of GDP in FY2024/25, supported by increased remittances and a wider services surplus.

Egypt will be challenged with a large budget deficit in the medium term owing to high commodity prices, rising interest rates and the impact of the pound devaluation on Egypt’s import bill. Egyptian authorities expected the budget deficit for 2024/25 to record 7.3%. Noting that 2023/24 budget deficit recorded 3.6% of GDP compared to 6.1% of GDP in 2022/23, due to one-off revenue from the Ras El Hekma deal.

Fitch expects that over the medium term, the deficit to gradually narrow but to remain around 4.5% of GDP due to sticky spending profile. The forecast assumes that the elimination of fuel and electricity subsidies will take longer than the government’s plan. The authorities plan to eliminate the fuel subsidy by 2025 and the electricity subsidy by 2026 and shift to a targeted subsidy system by FY2025/26.

Foreign Exchange Liquidity

Egypt’s foreign exchange liquidity position has deteriorated in recent years, but it improved gradually during 2024. Foreign exchange reserves have strengthened and are expected to continue growing, supported by capital inflows and potential debt issuance. According to the CBE, as of the end of September 2024, Egypt’s foreign exchange reserves stood at around USD46.74 bn. This is compared to USD35.22 bn at the end of December 2023 (USD34.0 bn at the end of Dec. 2022). Reserves are expected to cover around half a year’s worth of imports in the next 12 months, above the global adequacy metrics.

On 6 March, the Central Bank of Egypt (CBE) floated the official exchange rate which converged to the parallel rate at about EGP 51 per USD from EGP30.9 per USD. While this has helped the country to progress in terms of partially clearing trade backlogs, the market has not yet been fully liberated. The CBE also announced it would allow new currency derivatives to unlock liquidity in the local market, making available instruments to hedge against risks to the pound. According to IHS September 2024 report, a clear commitment of Egyptian authorities to announced reforms and further foreign currency inflows are needed to help improve Egypt’s situation. The source of this liquidity injection could also come from accelerating asset sales deals with the Gulf Cooperation Council countries or looking for new ways to attract more foreign exchange to the market.

Egyptian authorities must show their determination to commit to a durable flexible exchange rate regime, in line with the USD8 bn IMF loan agreement announced in early March 2024, and ensure a sustainable improvement of confidence in the foreign exchange regime and the currency. Although costly in the near term (high interest rates), this trajectory would maximize the likelihood of capital inflows, ease foreign exchange liquidity shortages and help to contain a future increase in inflation from currency weakening.

Debt Sustainability

The IMF estimates that the government debt to GDP ratio remains high at around 96.4% for the year 2024, and external debt to GDP be around 46.6% by the end of June 2024.

Egypt’s overall debt declined by the end of FY2023/2024, which ended on 30 June 2024, to 89% of GDP, down from 95.7% posted at the end of the FY2022/2023, according to July’s fiscal monthly report published by the Ministry of Finance. According to the report, the local debt eased to 66.7% of the GDP at the end of FY2023/2024, compared to 70.5% at the end of FY2022/2023. Moreover, the external debt declined to 22.3% at the end of FY2023/2024, down from 25.2% at the end of FY2022/2023.

Moody’s expects domestic borrowing costs will consume almost 65% of revenue at the end of fiscal 2024, a ratio that may temporarily deteriorate further considering the observed official currency devaluation. The agreed allocation of a large share of divestiture proceeds directly to the treasury to support debt sustainability will partly mitigate the highly adverse metrics.

Egypt aims to reduce the debt-to-GDP ratio to less than 85% by the end of the next fiscal year; as stated by the Minister of Finance in August 2024. And he added that the external debt balance of the budget agencies decreased by more than USD3.5 bn by the end of June 2024, by a reduction rate of more than 4% compared to June 2023. Noting that 7 years is the average life of the external debt of the budget agencies by the end of June 2024. Egypt pledged to decrease the high debt level to below 80 percent in 2027, in line with its commitments under the International Monetary Fund’s (IMF) programme.

The CBE’s report highlighted a decrease in Egypt’s overall external debt, which fell to USD160.6 bn by March 2024 from USD164.5 bn in September 2023. The CBE announced that Egypt made payments totalling USD23.8 bn towards its external debt between July 2023 and March 2024. External debt payments amount to USD34.9 bn in 2024, USD19.4 bn in 2025, USD25.2 bn in 2026, USD12.7 bn in 2027, and USD8.1 bn in 2028, as per the latest central bank disclosures. The government remains committed to fiscal consolidation and debt reduction through measures such as tax reforms, subsidy rationalization, and expenditure control.

Egypt and the IsDB Group

Egypt joined the IsDB on 12 August 1974 as one of its founding members. Since then, the Bank’s involvement in Egypt has focused on fostering sustainable, inclusive economic growth and poverty reduction through financing projects in infrastructure and supporting Youth employment and job creation.

The first IsDB operation in Egypt was in September 1977. Egypt’s capital subscription to IsDB is ID3,971.37 mn, at 6.77%. Egypt is also a member of all IsDB Group Entities (ITFC, ICD, ICIEC, and IsDBi). Egypt is among the largest beneficiaries of the IsDB Group’s development financing. All IsDB Group entities have been active in Egypt. Since its inception, the IsDB Group has approved a total funding of about USD23.04 bn for Egypt. This includes about USD2.5 bn project financing by IsDB; USD315 mn supported by ICD; USD18.4 bn trade operations by ITFC, and USD1.8 bn by other IsDB Group funds and operations.

IsDB Group Cumulative Net Financing Approvals for Egypt Since Inception

Source: IsDB December 2024

Egypt’s Special Relationship with ICIEC?

The Integral Role of Reinsurance in ICIEC’s Operational Model

“A trajectory based on network expansion and capacity enhancement”.

ICIEC has demonstrated its commitment to bolstering its operational capacity and strategic leverage through a third round of capital increase. This capital augmentation is not merely a financial milestone; it represents a significant enhancement of ICIEC’s ability to underwrite more extensive and complex business transactions. Moreover, the increase amplifies the Corporation’s reinsurance capacity, a cornerstone of its operational model.

Reinsurance plays an integral role in ICIEC’s strategy, acting as both a risk management tool and a mechanism for capacity expansion. At its core, reinsurance allows ICIEC to manage its risk exposure effectively by sharing it with other financial entities. By leveraging its capital, ICIEC can optimize its capacity to engage with the global reinsurance market, ensuring that its coverage meets the growing and diverse needs of its clients. This leverage not only mitigates risk but also ensures that ICIEC remains a reliable partner for its stakeholders, even in volatile market conditions.

The Role of Retakaful in ICIEC’s Strategy

Retakaful, the Islamic equivalent of conventional reinsurance, is a critical component of ICIEC’s risk management framework. Unlike traditional reinsurance, Retakaful operates in compliance with Shariah principles, ensuring that all transactions align with Islamic ethical standards. In this system, Takaful operators—who provide insurance based on cooperation and shared risk – seek protection from Retakaful providers to safeguard themselves against the risks they underwrite.

However, the Retakaful market faces several challenges, including limited reliable data, constrained capacity, and a small pool of Retakaful providers and underwriters. These challenges are particularly pronounced in the lines of business that ICIEC specializes in, such as credit and investment insurance. Despite these obstacles, ICIEC’s strategic approach to Retakaful has proven to be both innovative and resilient.

One of the key aspects of ICIEC’s Retakaful strategy is its ability to forge strong partnerships with reputable and financially robust Retakaful providers. The Corporation has signed several Outward Quota Sharing Treaties and Outward Facultative Contracts of Reinsurance Agreements with these partners. These agreements are instrumental in protecting ICIEC’s capital against significant insurance losses, ensuring the sustainability and reliability of its operations.

ICIEC as a Reinsurer

In addition to leveraging reinsurance to manage its risks, ICIEC also acts as a reinsurer for various insurance providers, Export Credit Agencies (ECAs), and Exim Banks within its Member Countries. This dual role underscores ICIEC’s versatility and its commitment to supporting the broader insurance ecosystem in its Member Countries.

ICIEC provides capacity and technical expertise to these entities through Inward Quota Share Treaties and Inward Facultative Reinsurance Agreements (IFRPs). These agreements cover a range of products, including:

• Export and Domestic Trade Credit Insurance.
• Foreign Investment Insurance.
• Excess of Loss Reinsurance, which protects portfolios and limits losses.

Recent collaborations in this domain include agreements with key institutions such as Indonesia EXIM, Malaysia EXIM, Saudi EXIM, and Uzbekinvest. These partnerships not only enhance the operational capacity of the participating entities but also promote the development of robust insurance frameworks within ICIEC’s Member Countries.

The Strategic Importance of Reinsurance

Reinsurance is a vital function within ICIEC’s organizational framework, serving several critical purposes:

1. Risk Mitigation: Reinsurance allows ICIEC to share the risks associated with large and complex transactions, reducing the potential impact on its capital reserves.
2. Capacity Building: By transferring a portion of its risk to reinsurers, ICIEC can underwrite larger and more diverse portfolios, meeting the growing demands of its clients.
3. Market Development: ICIEC’s engagement with reinsurers fosters the development of the insurance and reinsurance markets in its Member Countries, promoting economic stability and growth.
4. Operational Efficiency: The support received from reinsurance partners enhances ICIEC’s operational efficiency, particularly in areas such as Short-Term and Medium-Term Insurance and Foreign Investment Insurance.

ICIEC’s Reinsurance Partnerships

ICIEC has established robust relationships with leading reinsurance providers across the globe. Its primary reinsurance partners are based in traditional markets such as London, Germany, France, Switzerland, and Bermuda. These partnerships are pivotal in providing the capacity and expertise required to support ICIEC’s operations. Recognizing the importance of diversification, ICIEC is actively exploring opportunities to collaborate with reinsurers in non-traditional markets. Potential new partners include entities in the United States, Singapore, Australia, and other countries within the Asia-Pacific (APAC) region. This strategic expansion not only broadens ICIEC’s reinsurance network but also enhances its ability to respond to emerging market trends and challenges.

Enhancing Reinsurance Efficiency

The reinsurance support that ICIEC receives has proven to be particularly beneficial in areas such as Short-Term, Medium-Term, and Foreign Investment Insurance. This support provides the necessary capacity to manage high-value transactions and enhances the efficiency of ICIEC’s operations. Moreover, ICIEC’s strong relationships with its Member Countries serve as an additional layer of assurance for its reinsurance partners. The Corporation’s reputation as a trusted and reliable entity within the Islamic financial ecosystem further strengthens its position in the global reinsurance market.

Future Outlook

Looking ahead, ICIEC is committed to further strengthening its reinsurance strategy. The Corporation will continue exploring additional arrangements and relationships with both existing and new reinsurance partners.

This proactive approach ensures that ICIEC remains at the forefront of the credit and investment insurance industry, capable of meeting the evolving needs of its clients.

ICIEC’s ongoing efforts to expand its reinsurance network and enhance its operational capacity underscore its role as a key player in the global insurance and reinsurance markets. By leveraging its unique position within the Islamic financial ecosystem, ICIEC continues to provide innovative and sustainable solutions that drive economic growth and stability in its Member Countries.

Conclusion

Reinsurance is more than just a financial instrument for ICIEC; it is a strategic enabler that underpins the Corporation’s ability to fulfill its mandate. Through its comprehensive reinsurance strategy, ICIEC not only safeguards its operations but also contributes to the development of robust insurance frameworks in its Member Countries. The Corporation’s commitment to innovation, collaboration, and diversification ensures that it remains a cornerstone of the Islamic financial ecosystem, delivering value to its clients and partners alike.