The Philippines is planning its debut in the Islamic bond market as the country’s government looks to fund its budget deficit, Finance Secretary Benjamin Diokno said.

The Asian country intends to raise $1 billion in Islamic bonds, also known as sukuk bonds, Diokno said in an interview Thursday on the sidelines of an event in Toronto.

“We want to penetrate the Middle East market,” said Treasurer Rosalia de Leon, adding that banks don’t have a mandate for the transaction yet. “We’re working on the structure” of the notes, she said.

The volume of outstanding sukuk bonds during the 12 months ended June 30 grew by 10% compared to the prior-year period and for the first time exceeded $800 billion, Fitch Ratings said in a report Thursday. While issuance may slow in the third quarter, it is expected to pick up in the final three months of the year, Fitch said.

The government seeks to ease its fiscal burden and bring the budget shortfall to 3% of economic output by the end of president Ferdinand Marcos Jr.’s term in 2028, from around 7% last year.

The transaction — potentially consisting of a 5-year and a 10-year tranche — may take place later this year, subject to market conditions, de Leon said. “We are looking at 10 years, but we are also being advised that the sweet spot would be five years,” she said.

The Philippines is among Asia’s fastest-growing economies, beating growth expectations in the first quarter. Gross domestic product in the three months through March rose 6.4% from a year earlier, compared to a 6.2% median estimate in a Bloomberg survey in May. The government is targeting gross domestic product growth of 6% to 7% this year.

On top of the sukuk transaction, the government plans to raise $2 billion by selling US dollar denominated bonds to retail investors, Diokno said.

--With assistance from Andreo Calonzo.

(Corrects attribution of quotes in third and sixth paragraphs to Treasurer de Leon.)