The GCC debt capital market crossed $1 trillion outstanding in the first half of 2025, when issuers from the region accounted for 35.5 percent of all emerging market dollar debt issuance. In its latest report, Fitch Ratings said that this is likely to grow further, driven by Saudi Arabia and the UAE, and by Kuwait’s re-entry to the debt capital market, likely later this year.
“The Saudi debt capital market will grow on ambitious government projects under Vision 2030, deficit funding and diversification efforts. In the UAE, budget surpluses are expected, but growth will be propelled by funding diversification and the Dirham Monetary Framework implementation,” said Fitch.
Lower oil prices to support debt issuance in H2 2025
U.S. dollar debt issuance from emerging markets was resilient and issuers from GCC countries, Malaysia, Indonesia and Türkiye accounted for just over half of such issuance in H1 2025, Fitch Ratings said. Large financing needs, diversification goals and upcoming maturities are among the key drivers.
Countries viewed as relatively safe havens from the U.S. trade war, such as those in the GCC, were beneficiaries of foreign inflows in H1 2025. Market diversity via sukuk and ESG instruments is also expanding in emerging markets.
As the GCC debt capital market continues to grow, Malaysia’s issuance is likely to slow further as the government maintains efforts to reduce federal debt. In Indonesia, debt capital market issuance should continue over H2 2025, while in Türkiye, modest growth is expected.
Debt issuance in H2 2025 will be supported by a lower oil price, particularly for many OPEC members, and further interest rate declines. However, risks persist from U.S. tariffs, geopolitical and capital market volatility, and, for sukuk, sharia-compliance complexities.
Sukuk demand outpaces supply in H1 2025
In Saudi Arabia and Malaysia, sukuk made up most of the debt capital market outstanding in H1 2025. The share of sukuk is also significant in the UAE at 21.9 percent, Indonesia at 18 percent, Qatar at 17.8 percent and others.
The pricing of comparable sukuk and bonds remained highly correlated in 2024. Fitch rates more than 70 percent of U.S. dollar sukuk globally – the vast majority in emerging markets – with about 80 percent investment grade at the end of H1 2025 and no defaults.
Sukuk demand outpaced supply, supported by Islamic banks that have adequate liquidity in most markets and that cannot invest in bonds. ESG sukuk accounted for 41 percent of ESG dollar debt issuance in H1 2025 in emerging markets, with the rest in bonds.
Saudi Arabia leads emerging market dollar debt issuance
Emerging market liquidity conditions have improved since U.S. tariff plans were announced in April 2025. In H1 2025, emerging market dollar debt issuance exceeded $250 billion, with issuers from Saudi Arabia leading at 18.9 percent, followed by those from Brazil at 10.6 percent, the UAE at 8.7 percent, Mexico at 7 percent, Türkiye at 6.7 percent, Indonesia at 6.4 percent, Malaysia at 4.1 percent and Qatar at 3.2 percent.
Sukuk was 13.7 percent of all emerging market dollar issuances in H1 2025. Fitch considers that geopolitical risks in the Middle East remain high, and a resumption of military activity is possible. However, the DCMs were resilient to the conflict in June.
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Demand grows as foreign investors seek to diversify away from U.S. assets
“There is renewed foreign investor interest in emerging markets, which we believe reflects a desire to diversify away from concentration in U.S. assets, given trade war uncertainties and the effects of a weaker dollar. Among the core Islamic finance markets, foreign investor ownership of domestic government debt is highest in Malaysia, followed by Indonesia, Türkiye and Saudi Arabia,” said Fitch.
The inclusion of GCC countries, Malaysia, Indonesia and Türkiye in global bond indices has also increased foreign investor demand. In the J.P. Morgan Government Bond Index-Emerging Markets, the collective share of Indonesia, Malaysia and Türkiye reached 21.4 percent in H1 2025.
Saudi Arabian sukuk are on the radar for inclusion in this index, while the UAE’s status for the Emerging Market Bond Index is under review for 2026.
