Supporting Egypt’s Inaugural Green Bond Issuance

On September 29, 2020, Egypt became the first country in the Middle East and North Africa to issue a sovereign green bond. Slightly more than a year later, with the publishing of its first impact report, Egypt’s example is inspiring other countries in the region—and emerging markets more broadly—to consider green bonds as a financial solution.

The five-year green bond was initially announced for US$500 million, with an interest rate of 5.75 percent. The bond was more than seven times oversubscribed, which led the government to increase its size to US$750 million and to lower the interest rate to 5.25 percent (lower than Egypt’s benchmark conventional bonds). Moreover, the bond witnessed the participation of an unprecedented 16 new investors in bond issuances denominated in US dollars.

To prepare the impact report, Egypt’s Ministry of Finance received help from the Government Debt and Risk Management (GDRM) Program, a World Bank initiative sponsored by the Swiss State Secretariat for Economic Affairs (SECO). GDRM has been supporting Egypt since 2015 as part of a broader partnership on public debt and risk management.

Choosing a green bond over other funding options

The green bond was conceived as a financial solution to meet Egypt's pressing need for environmentally sustainable investment. Proceeds were earmarked for financing clean transportation, renewable energy, pollution prevention and control, sustainable water and wastewater management, energy efficiency, and climate change adaptation. Egypt Vision 2030 aims to increase the proportion of green projects in the government’s investment budget from 14 percent in 2020 to 30 percent in 2022.

To support this ambitious agenda, the Ministry of Finance started exploring financing options—among them green bonds—which target investors interested in achieving both a financial and social return. 

Green, social, sustainability and sustainability linked (GSSS) bonds accounted for only 2.2 percent of the US$27.3 trillion in global bond issuances in 2020. But they have been on an upward trajectory amid rising investor interest in supporting climate action.

GSSS bonds were a good fit for Egypt’s Medium-Term Debt Management Strategy (MTDS), which aimed to diversify the government’s funding sources. Egypt’s debt portfolio mainly includes short-term domestic debt owed to commercial banks (78 percent of the total debt). Therefore, the MTDS calls for reaching out to other investor types and increasing the share of euro- and U.S. dollar-denominated debt.

In May 2020, the Ministry of Finance issued a triple-tranche US$5 billion plain-vanilla Eurobond. For the rest of the fiscal year, Egypt considered a variety of funding alternatives to further diversify funding sources, including sukuk green bonds and variable-rate bonds.

“We chose the green bond over other alternatives because of its potential to attract new segments of investors seeking socially responsible investments,” said Mrs. Eman Abdelazim, head of external debt issuances. “We also considered the green bond as an important opportunity to demonstrate the government of Egypt's commitment to integrating sustainability in its funding strategy and achieving its nationally determined contribution targets as set in the Paris Agreement and Sustainable Development Goals.”

Technical knowledge needed for green bond issuances

A major difference between green and conventional bonds is that issuers are expected to establish specific governance processes designed to ensure the green credential of the bond. The issuer develops a Green Bond Framework, allocates proceeds to pre-defined eligible projects, and regularly reports the impact of supported projects to investors. Having had no previous experience, Egypt needed to build capacity to undertake such operations.

That’s where the GRDM program entered the picture. Under the GDRM program, the World Bank, a pioneer of green bonds and sustainable development bonds, provided expertise for Egypt’s green bond issuance in a variety of areas, including on how to manage investor expectations on communication strategy. The program provided advice to align the transaction with Egypt's debt-management strategy and government policies. Egypt’s Green Bond Framework was evaluated by an independent provider—Vigeo Eiris, an affiliate of Moody's Corporation—and received a "robust" assessment.

After the successful issuance of the bond in September 2020, the GDRM program provided training and technical assistance through the World Bank Treasury's Sustainable Finance Advisory services to support the preparation of the post-issuance allocation and impact report.

"The allocation and impact report is a critical part of the green bond process, and typically the most challenging for debt-management offices," said Farah Imrana Hussain, a senior financial officer in the World Bank Treasury who led the project. “We helped the debt management office prepare the impact report according to World Bank guidelines so it meets investor expectations in terms of quality, transparency, and timeliness.”

The program also sponsored a case study to capture lessons learned and share Egypt's inaugural green bond story and experience through a series of knowledge-sharing workshops with peers to catalyze more countries in the region step up efforts for climate action.

The work on Egypt’s green bonds issuance is part of a wide set of efforts by the World Bank aiming to support Egypt’s climate endeavors and help improve the quality of life for citizens. Those efforts include technical assistance and lending, as well as supporting the upcoming Conference of the Parties, known as COP27.

Benefits for the people of Egypt

For those who will benefit from projects financed by Egypt’s sovereign green bond, this funding solution delivers profound changes: more access to potable water through seawater desalination; more crops through wastewater reuse for irrigation; and a safer, more affordable commute through the Cairo Monorail. It also means more transparency in government spending for environmental projects through allocation and impact reporting.