Global long-term sukuk issuance reached $88bn in 2021, Moody's says

Saudi Arabia, Malaysia and Indonesia accounted for 77% of outstanding sovereign sukuk by the end of last year

Higher oil prices, lower pandemic-related spending and narrower government deficit reduced the need for financing in Saudi Arabia. Getty

Global sovereign long-term sukuk issuance, including those by the multilateral banks, dropped 22 per cent to $88 billion in 2021 as improving economic sentiments reduced the financing needs of governments, Moody’s Investors Service said.

Higher oil prices, lower Covid-related spending and accelerated economic activity in sukuk-issuing countries contributed to a drop in issuance after a record year in 2020, the rating agency said.

Sovereign sukuk issuance was dominated by Saudi Arabia, Malaysia and Indonesia, which together accounted for 77 per cent of outstanding sovereign sukuk by the end of 2021.

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Sukuk issuance could drop further by $73bn in 2022 and $75bn in 2023 as economies improve, Moody's said.

"Supportive macroeconomic environment and higher oil prices will lead to further strengthening of fiscal positions and reduce gross financing needs for key sukuk issuers. In the GCC countries alone, excluding Kuwait, the aggregate fiscal surplus will widen to $50bn in 2022 from an estimated $13bn in 2021, offsetting a large increase in scheduled sukuk repayments," the report said.

GCC economies are expected to grow at their fastest pace in more than a decade, buoyed by a crude price rally that has accelerated their economic recovery from earlier days of the Covid-19 pandemic.

Gross domestic product in the six-member economic bloc will expand by 6.1 per cent in 2022, helped by rising oil production and robust non-oil sector activity, Japanese bank MUFG said in a report this month.

"The largest decline in the supply of sukuk came from the GCC sovereigns, mainly Saudi Arabia, where issuance contracted by 28 per cent year-on-year in 2021. This was a result of higher oil prices and lower pandemic-related spending, both of which improved the fiscal positions of GCC sovereigns. The combined fiscal balance of major GCC sukuk issuers shifted to an $18bn surplus in 2021 from a deficit of $112bn in 2020," Moody's said.

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Potential issuance from Egypt and Kuwait could brighten the outlook for sukuk in the medium term, the rating agency said. Egypt is planning to issue its first sovereign sukuk by June this year after it issued a $750m green bond in 2020.

"After the expected first sukuk issuance later this year, we would expect Egypt to become a regular sovereign sukuk issuer in the coming years," the report said.

Meanwhile, an approval of a new public debt law in Kuwait could also boost sukuk issuance in the Gulf country, Moody's said.