Today's Edition
MAYS IBRAHIM (ABU DHABI)
The Gulf Cooperation Council (GCC) countries are likely to maintain their dominance in emerging-market (EM) US dollar debt issuance in 2025 and 2026, driven by government initiatives, economic diversification goals, and rising project funding needs, according to a recent report from Fitch Ratings.
The region will also continue to be a global leader in sukuk issuance, with Saudi Arabia and the UAE spearheading growth, the report showed.
At the end of January 2025, GCC debt capital markets (DCM) surpassed $1 trillion outstanding across all currencies, reflecting a 10% year-on-year (YoY) increase, according to Fitch Ratings.
In 2024 alone, GCC countries accounted for a quarter of all EM US dollar debt issuance (excluding China), with issuance soaring by 65.8% YoY to $133.4 billion. Saudi Arabia had the largest share of GCC DCM outstanding (44.8%), followed by the UAE (29.9%) and Qatar (12.8%).
Falling oil prices could lead to further DCM growth as lower government revenues could lead to increased borrowing. Fitch expects lower US Federal Reserve interest rates in 2025, with GCC central banks likely to follow suit, which should create a favourable funding environment. Four out of six GCC sovereigns are investment-grade."
Saudi Arabia and the UAE remain the most mature debt markets, but other GCC nations are expanding their presence. Kuwait emerged as the third-largest GCC dollar debt issuer in 2024, with issuances reaching $13.6 billion, Fitch reported.
"Kuwait's new government plans to revise liquidity laws to facilitate capital market borrowing, but the timeline is uncertain."
Islamic finance continues to play a crucial role, with sukuk accounting for 40% of the region's DCM outstanding at end-January 2025, according to Fitch Ratings.
GCC sukuk issuance surged 43% YoY in 2024 to $87.5 billion, significantly outpacing bond issuance, which grew only 1.1%. Fitch data shows that 80% of GCC sukuk are investment-grade, with the majority in the 'A' category.
Environmental, Social, and Governance (ESG) debt is also gaining traction. By January 2025, GCC ESG debt had crossed $50 billion, with nearly half in sukuk format. The UAE and Saudi Arabia led this trend, with ESG debt comprising 17% and 7.3% of their dollar issuance, respectively.
ESG debt is expected to attract global investors from the US, Europe, and Asia seeking sustainable financial instruments, according to the Fitch report.
It also pointed out that GCC banks are expected to issue over $30 billion in US dollar debt in 2025.
"However, the landscape is still fragmented and evolving, with Saudi Arabia and UAE being the most mature markets. No Fitch-rated GCC sukuk or bond defaulted in 2024."
With US Federal Reserve rate cuts anticipated in 2025, GCC central banks are expected to follow suit, creating a favourable funding environment, Fitch Ratings predicts.
