My Say: Financing Covid-19 stimulus packages with GDP-linked #sukuk

The fiscal cost of fighting the economic fallout of the pandemic has been great for each nation. Many governments have already pledged billions in grants to support fiscal stimulus packages. Through moratoriums and debt relief programmes, capital that would have otherwise been used to pare down debts will instead be utilised by vulnerable groups and SMEs to support their expenditures in times of reduced income. These expenditures will in turn contribute towards GDP growth, save jobs and limit unemployment. But in order to do so, governments have to dig deep into their reserves. GDP-linked sukuk is one way to convert debts into equity repayments based on the GDP performance of the country. GDP-indexed securities can be viewed as desirable vehicles for international risk sharing and for avoiding the disruptions arising from formal default.