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Gulf Bond & Sukuk Issuances Surge to $340 Billion in 2024 Amid Market Dynamics

The bond and sukuk markets in the Gulf Cooperation Council (GCC) region saw a significant uptick in 2024, with total issuances reaching approximately $340 billion, marking a 5.7% year-on-year growth. According to recent estimates by Fitch Ratings, this increase highlights the region’s strong economic resilience and growing appeal to global investors despite various challenges. The surge reflects both the continued investment in infrastructure and development projects by regional governments, as well as the increased funding needs of banks and private sector companies across the GCC.

Bashar Al-Natoor, the Global Head of Islamic Finance at Fitch, expressed confidence that the growth in issuances would extend into 2025. He attributed this continued momentum to several factors, including the need for refinancing existing debt and addressing financing requirements from government entities, financial institutions, and large corporations throughout the GCC. As interest rates stabilize and geopolitical uncertainties remain at the forefront, the demand for debt instruments like bonds and sukuk is expected to stay strong.

Geopolitical Tensions and Interest Rate Fluctuations: Key Factors Driving Issuances

Despite the challenges posed by ongoing geopolitical tensions in the Middle East and the global volatility in interest rates, bond and sukuk issuances in the GCC remained robust in 2024. Al-Natoor highlighted that the issuance activity was notably strong even as regional conflicts and fluctuations in global financial markets created an unpredictable environment for debt investors. This resilience is indicative of investor confidence in the GCC’s economic stability and long-term growth prospects.

In terms of outstanding debt, the value of bonds and sukuk in circulation across the GCC reached an impressive $990 billion by the end of 2024, marking a growth rate of 11.9% compared to the previous year. This surge in outstanding debt can be attributed to the region’s expanding financial sector, the rise of public-private partnerships, and the implementation of major government-funded projects.

Saudi Arabia emerged as the leader in the issuance of bonds and sukuk, accounting for 44% of the region’s total debt market, followed closely by the UAE with a 30% share. This dominance underscores the significant role these countries play in driving the regional debt market, with their strong economic fundamentals, investment-grade ratings, and large-scale infrastructure projects that continue to attract both regional and international investors.

Structural Composition: Dominance of the U.S. Dollar and the Role of Riyal and Gold

The currency structure of the GCC’s bond and sukuk market shows a clear preference for the U.S. dollar. According to Fitch’s analysis, the dollar remains the dominant currency in these issuances, underscoring the region’s deep integration with the global financial system. The Saudi riyal follows as the second-most common currency used in GCC bond and sukuk issuances, representing 18% of the total market share. Gold, traditionally a safe-haven asset, also plays a smaller role in the region’s debt instruments.

This trend indicates that international investors, particularly those in the Western markets, continue to view the GCC’s bond and sukuk issuances as a stable and reliable investment option. With the dollar serving as the benchmark for much of the world’s debt markets, it is no surprise that the majority of issuances in the GCC region are denominated in U.S. dollars, providing a familiar structure for global investors looking for exposure to the region’s growth prospects.

Looking Ahead: Forecasting 2025 Issuances and the Role of Fixed-Income Investments

Looking ahead to 2025, experts predict that the bond and sukuk market in the GCC will maintain its strong momentum, with total issuances potentially reaching $150 billion. Mohieddine Kronfol, the Global Sukuk and Fixed Income Investments Manager at Franklin Templeton, suggested that, assuming stable market conditions and no significant economic disruptions, issuances could continue on a positive trajectory. This optimistic forecast reflects the ongoing demand for infrastructure financing, the growing interest in sustainable investment options, and the region’s continued efforts to diversify its economic base.

Kronfol also acknowledged the potential for market fluctuations in the coming months, particularly due to uncertainties surrounding global interest rate policies and economic growth projections. However, he emphasized that the fixed-income market in the GCC remains a crucial asset class for investors, offering both protection and return. While equities and real estate may face greater volatility, fixed-income investments, including bonds and sukuk, are expected to offer more stability, making them an attractive option in the face of global economic uncertainty.

With the U.S. Federal Reserve expected to cut interest rates three times in 2025, potentially bringing rates below 4%, the fixed-income markets across the GCC region could see further demand. Lower interest rates generally enhance the appeal of debt instruments, as they reduce borrowing costs for governments and corporations, while also offering higher yields for investors.

 A Thriving Debt Market Amid Global Challenges

The GCC bond and sukuk markets have proven to be resilient in the face of geopolitical instability and global economic volatility. With growing demand for infrastructure funding, stable interest rates, and investor confidence in the region’s long-term prospects, the market is positioned for continued growth. The combination of government support, strong corporate demand, and an increasingly diverse investor base will likely ensure that the GCC remains a key player in the global bond and sukuk markets in the years to come. As regional and international investors continue to seek stable returns, the future of the GCC’s debt market appears bright, with robust growth expected throughout 2025 and beyond.

 

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