• Algeria to issue first sovereign sukuk worth $2.3 billion
• Bonds aim to fund budget deficit, tap informal savings
• Sukuk open to nationals only, backed by public real estate assets

Algeria is set to issue its first-ever sovereign sukuk, or Islamic bonds, worth 297 billion dinars ($2.3 billion), as the government seeks to finance its growing budget deficit and diversify its funding sources.

The Islamic bonds will have a seven-year maturity and offer a fixed annual return of 6 percent, paid to holders as rental income in accordance with Sharia principles, according to a Finance Ministry document. The issuance will open on Nov. 2, 2025, and run for two months.

The subscription will be exclusively reserved for Algerian citizens, both residents and those living abroad, with foreign investors excluded from this inaugural offering. The sukuk will be backed by public real estate assets, which will be used as the underlying guarantee.

The government aims to capture a significant portion of national savings, particularly funds in the informal economy, which authorities estimate to be nearly 10,000 billion dinars.

This debut sukuk issuance is a significant step in the economic reforms Algiers is pursuing to reduce its heavy reliance on oil and gas revenues, which still dominate public finances. The goal is to broaden the investor base, develop the domestic capital market, and increase the role of Islamic finance in the national financial architecture.

By utilizing sukuk, the government also hopes to channel funds from the parallel economy into official circuits. President Abdelmadjid Tebboune recently stressed the importance of mobilizing these resources to support growth and finance social needs.

Neighboring countries, including Saudi Arabia, Morocco, and Egypt, have already turned to sovereign sukuk to diversify their financing. Globally, the sukuk market has more than $800 billion outstanding, dominated by Gulf nations and Malaysia.

Budgetary Constraints and IMF Warning

The timing of the issuance comes amid a tense budgetary environment. After recording a deficit of 13.9 percent of GDP in 2024, driven by declining oil revenues and rising public spending, Algiers is expected to post a deficit exceeding 11 percent of GDP in 2025, according to the International Monetary Fund (IMF). The country's budget cushion, the Revenue Regulation Fund, was completely depleted in 2024.

In its report released in late August, the IMF noted that while the Algerian economy benefited from a post-pandemic recovery, it remains "vulnerable to its dependence on hydrocarbons." Growth is forecast to reach 3.4 percent in 2025, a slight increase from 3.6 percent in 2024, thanks to a small rebound in the energy sector. However, the current account deficit, which returned to negative territory in 2024, is expected to widen this year, and public debt, estimated at 48.5 percent of GDP in 2024, could surpass 60 percent in 2026.

The international institution described the fiscal situation as concerning, urging Algiers to implement an "ambitious" fiscal consolidation of about 5 percent of GDP by 2028 to stabilize the debt trajectory. The IMF specifically recommended rationalizing energy subsidies, which are a considerable burden on public finances, and aggressively mobilizing non-hydrocarbon tax revenue, which is currently limited to about 10 percent of GDP.

Pending these structural reforms, the use of alternative financing instruments like sukuk is viewed as a necessary step to ease pressure on the domestic banking sector and diversify public resource sources.

For Algiers, this first operation is a real-world test. A successful response from national investors could pave the way for future issuances, possibly on international markets. Authorities have not ruled out eventually offering sukuk denominated in foreign currencies to attract external capital, further accelerating the development of the country's nascent Islamic finance industry.

Fiacre E. Kakpo