The impact of interest rate hikes on Egypt’s green financing gap

Purpose This study aims to empirically analyze the effect of interest rate fluctuations on Egypt’s green financing gap. While numerous studies have investigated green finance determinants, no prior research has specifically analyzed the influence of interest rates on the green financing gap. Design/methodology/approach This study employs the dynamic ordinary least squares methodology to assess the relationship between interest rate fluctuations and the green financing gap in Egypt. Owing to data limitations and the absence of an established proxy, the “GFG Index” is developed to quantify the green financing gap using available national-level indicators. Findings The empirical analysis reveals a significant positive relationship between interest rates and Egypt’s green financing gap. An increase in interest rates widens the green financing gap, indicating the adverse impact of contractionary monetary policy on green finance availability and affordability. The study suggests implementing dual interest rates and a suite of central bank measures to address this issue. Complementary fiscal, financial and environmental policies are also proposed to form a comprehensive strategy for green finance. Originality/value This study contributes to the literature by exploring the complex relationship between interest rates and the green financing gap and providing the first empirical evidence of how interest rate fluctuations affect the green financing gap in Egypt. It introduces the GFG Index as an innovative proxy for the green financing gap. The study offers policy recommendations that integrate central bank instruments with broader green finance strategies, addressing a previously unexplored dimension of green financial policy in developing economies.