Egypt urged to manage finances by Sharia rules

CAIRO // Egypt will encourage a much greater focus on Islamic finance if a leading political group gets its way, a senior Islamic party official said.

Abdel Hafez El Sawy, an economist for the Freedom and Justice political party, formed by members of the Muslim Brotherhood, said all the group's economic policies would be rooted in Sharia principles.

The use of financial instruments such as derivatives and futures, which are contracts for delivery of commodities, currencies or shares of a company, violated the teachings of Islam, he said.

His views are significant, given that recent polls have shown the Muslim Brotherhood to be the single most popular group for elections expected to be held this year.

"Speculative instruments have caused great trouble for the Egyptian economy," said Mr El Sawy, a member of the party's economic committee. "We will start off by communicating that some of these acts are not in compliance with Sharia. But if we feel that these acts are harming the economy, they will be clearly prohibited."

An Abu Dhabi Gallup poll in April found that 15 per cent of Egyptians supported the group, which had been banned for three decades under the government of Hosni Mubarak, who was ousted from the presidency in February. The group is seeking a role in politics through the newly formed party.

While the policy debate in Egypt is shifting towards reviving the economy, few parties have unveiled detailed platforms for how they would spur growth and create jobs. Mr El Sawy said Freedom and Justice was focused on lifting spending for education, healthcare and job creation.

One way it would do this would be to create an official zakat fund under the finance ministry that would collect the 2.5 per cent mandatory payment from Muslims and spend it to help the poor and to improve education.

Traditionally, zakat funds are payments made by individuals to any type of charity or less well-off neighbours. The fund could raise 18 billion Egyptian pounds (Dh11.13bn) in a year and would be used to help any citizen in need, regardless of religion, Mr El Sawy said.

But more broadly, the party believes Egypt could become a centre of Islamic finance to rival Bahrain and Malaysia. "People want this. When they go to the bank, they want access to products that are Sharia-compliant," he said.

While analysts say the country desperately needs to improve education, infrastructure and increase employment, they warn that any move that would isolate Egypt from global financial markets by barring the use of some financial instruments could harm growth.

Dr Magda Kandil, the executive director of the Egyptian Center for Economic Studies in Cairo, said such a move would be a backward step.

"It's much more problematic than what I had expected," she said. "I thought they would be a little more mainstream … There is a downside risk to a more isolationist approach to the economy that closes doors to investors and alienates it from the international financial markets."

Egypt rejected a $3bn (Dh11bn) loan from the IMF, it emerged last week.

Samir Radwan, the finance minister, said the country would not need to borrow from the IMF or the World Bank, which had also offered a large package of loans, because the budget deficit could be covered locally and from foreign aid.

The interim government has cut spending to reduce its expected fiscal deficit to 8.6 per cent of GDP in the year that began on Friday, down from 9.5 per cent in the financial year that has just ended, the finance ministry said.

Dr Kandil said the decision to reject IMF money was a sign that the interim leadership was afraid of being seen to agree to conditional deals with foreign lenders, even though the interest on the IMF loan was below market levels.

International investors would view the move with caution, she said, because IMF loans came with policy conditions that acted as a "seal of approval" that the nation's finances were being prudently managed.

"It was a cheap loan, and it would have been a catalyst for the international community," she said. The IMF was offering a 1.5 per cent, while local and international banks would be likely to charge much higher rates for loans.

Introducing more Islamic finance would not necessarily solve the country's economic problems, said John Sandwick, an Islamic finance adviser in Switzerland. While the global Islamic finance market was growing, it still carried risks, he said.

"Sharia is a method of doing business that doesn't stop speculative frenzies and impractical or unethical behaviour, as we've seen all too clearly," he said.

bhope@thenational.ae