ALGERIA: In a bid to plug its budget deficit caused by the lower price of the barrel, the Algerian government is moving quickly to develop Islamic finance in the next few months with Shariah compliant solutions to be offered by state banks by the end of the year and Sukuk issuances planned between 2018 and 2022.
In its action plan adopted by 341 deputies out of 462, the government will allow two government-owned banks to start offering Islamic products by December while four other state banks will receive the greenlight come 2018. With this decision, the government is aiming to attract an estimated DZD2.7 trillion (US$23.97 billion) kept outside of the country’s banking system, partly for religious reasons.
In a statement before the People’s National Assembly, the Lower House of the parliament, Algeria’s prime minister, Ahmed Ouyahia, also shared that the Financial Bill 2018 will accommodate Sukuk. The Algerian Public Treasury intends to tap the Islamic capital market several times until 2022 with the first issuance planned for 2018. The amount issued year after year should diminish progressively. The funds raised from the Algerian central bank will be utilized by the government to pay its debts.
“Unconventional funding will not be directed to consumption, rather, it will be used to finance productive investment projects and pay the Public Treasury’s internal indebtedness,” Ahmed said. “We are living a hell of a situation, we do not have money. This is the reason why the government decided to amend the law on money and credit to allow the introduction of non-conventional financing,” he added.
The implementation of the government’s action plan will be monitored by an independent institution soon to be established. Under the authority of President Abdelaziz Bouteflika, it will produce a quarterly report on the progress of the situation.
Despite its introduction as early as the 1990s, Islamic finance has remained relatively undeveloped in Algeria due to historical and political reasons, with its civil war the main reason. Only certain foreign private banks including Banque Al Baraka d'Algerie and Gulf Bank Algeria are currently allowed to offer Islamic products.