According to a recent research note by Moody’s Investors Service, demand for Sharia-compliant financing is set to outpace conventional funding by 2023. This trend is driven by strong economic growth and development agendas in key markets, including Saudi Arabia amid higher oil prices. Globally, the issuance of sukuk is predicted to “level off” this year, ranging from $170 billion to $175 billion in 2023, supported by sovereign financing needs in major Asian markets like Malaysia and Indonesia. Despite a 10 percent decrease in 2022 to $178 billion due to lower funding requirements, there is expected growth in sukuk volumes. This growth potential is fueled by robust economic activity in Southeast Asia and the GCC region, which will be driven by high commodity prices, economic diversification agendas, sovereign support, and the increasing demand for Sharia-compliant products.
In terms of long-term sovereign sukuk, 2023 will stabilize the volume at an $80 billion level after two years of declines before rising to around $80 billion to $85 billion in 2024. Potential growth in other jurisdictions remains high, indicating that leadership in sukuk issuance will no longer be limited to Saudi Arabia and Malaysia. Although these two countries will continue to lead in sukuk issuance, supportive hydrocarbon prices will continue to enhance the fiscal balances of energy-exporting sovereign issuers. With most GCC sovereigns still recording budget surpluses this year and in 2024, it is expected that they will fund their development agendas through a combination of conventional and Islamic financing.
Moody’s proposes that Malaysia, Indonesia, and Turkey will be the largest sovereign issuers this year and next. Low funding requirements for the Gulf Cooperation Council (GCC) states, coupled with continued government spending, contribute to reduced net financing needs for major sukuk-issuing organizations due to the post-pandemic economic recovery. Furthermore, commodity prices that increased more than 60% in 2021 support the budgets of energy-exporting countries in the Gulf, and current account surpluses facilitate the financing of development agendas.
Even with lower funding requirements, GCC countries, alongside Malaysia and Indonesia, remained the largest issuers of sovereign sukuk. According to Moody’s data, they accounted for 77% of total long-term gross sovereign issuance and 87% of outstanding long-term sovereign issuance at the end of last year. Saudi Arabia accounted for 78% of outstanding government sukuk sold in the region and 34% of government sukuk issued globally since the launch of its domestic riyal-denominated sukuk issuance programme in 2017.
In conclusion, Moody’s predicts that demand for Sharia-compliant financing is likely to keep growing faster than conventional peers supported by economic activity in Southeast Asia and the GCC region. This trend will be driven by high commodity prices, economic diversification agendas, sovereign support, and the increasing demand for Sharia-compliant products. While GCC countries, Malaysia, and Indonesia remained the largest issuers of sovereign sukuk in 2022, potential growth in other jurisdictions remains high, indicating that leadership in sukuk issuance will no longer be limited to Saudi Arabia and Malaysia.
عبدالرحمان زمین پیما
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آرمان جعفری
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