Gulf Cooperation Council (GCC) countries contributed over 35 percent of all emerging-market (EM) U.S. dollar debt issued in Q1 2025 (excluding China), up from around 25 percent in 2024, a new report revealed.
According to Fitch Ratings, this upward trend is likely to continue growing during 2025–2026, according to Fitch Ratings. The expansion of GCC debt capital markets (DCMs) is anticipated, driven by factors such as funding diversification, project financing, budget deficits, maturities, and regulatory changes. However, the region remains vulnerable to global macroeconomic and financial market uncertainty.
Since April 2, primary market dollar issuance has been relatively quiet, although recent activity suggests a healthy pipeline is building. Liquidity among regional and Islamic investors remains robust.
Fragmented market dynamics among GCC member countries
The GCC DCM continues to display fragmentation among its six member countries regarding maturity, depth, and credit profile, with Saudi Arabia and the UAE being the most developed. In Kuwait, Qatar, Bahrain, and Oman, the absence of connections to international central securities depositories like Euroclear or Clearstream hinders foreign investor participation in local-currency DCMs. In contrast, Saudi Arabia has seen foreign investors account for a growing share of government local issuances, reaching 7.7 percent of the investor base at the end of Q1 2025 (up from 4.5 percent in 2024), the reported noted.
Oil price volatility poses challenges for GCC fiscal revenue
U.S. tariff-related volatility and faster-than-anticipated OPEC+ production cuts have created downward pressure on oil prices (2025F and 2026F forecast at $65 per barrel), which may impact fiscal revenue in the GCC and lead to increased borrowing through the DCM. While public finances in Bahrain and Saudi Arabia show greater sensitivity to lower oil prices, Oman is better positioned, and Qatar, Abu Dhabi, and Kuwait possess substantial assets to buffer against sustained declines in oil prices. Fitch projects that U.S. Federal Reserve interest rates will decrease to 4.25 percent by the end of 2025, likely prompting GCC central banks to follow suit. Many GCC banks and corporates are expected to continue diversifying their funding through DCM issuances.
GCC DCM surpasses $1 trillion outstanding
The size of the GCC DCM exceeded $1 trillion outstanding (all currencies) at the end of Q1 2025, reflecting a 10 percent year-on-year increase. A variety of issuers accessed the market, including sovereigns, corporates, financial institutions, and project entities. Total DCM issuance in Q1 2025 grew by 11 percent over the quarter to $89 billion, although it was down 3 percent year-on-year. Saudi Arabia commands the largest share of DCM outstanding at 45.1 percent, followed by the UAE at 29.9 percent and Qatar at 13 percent, the paper highlighted.
GCC countries account for over 40 percent of the global sukuk market outstanding. Sukuk represented around 40 percent of the GCC DCM at the end of Q1 2025, with the remainder in bonds. GCC sukuk issuance fell by 51 percent year-on-year in Q1 2025 to $18.2 billion, while bond issuance increased by 29 percent. The ESG DCM in GCC countries surpassed $50 billion (all currencies) as of Q1 2025.
Investment-grade ratings dominate GCC sukuk
As of the end of Q1 2025, approximately 83.5 percent of the GCC U.S. dollar sukuk publicly rated by Fitch are classified as investment-grade (outstanding, including multilaterals). Among these, 57.8 percent fall within the ‘A’ category, 13.5 percent in the ‘AAA’ category, 8.8 percent in the ‘BBB’ category, 8.3 percent in the ‘BB’ category, 8.2 percent in the ‘B’ category, and 3.4 percent in the ‘AA’ category. Most issuers maintain Stable Outlooks (85.5 percent), while Positive and Negative Outlooks represent 5.4 percent and 9.1 percent, respectively. The Negative Outlooks include Fitch’s February 2025 change of Bahrain’s Outlook to ‘Negative’ from ‘Stable’. No Fitch-rated GCC sukuk or bond defaulted in 2024 or Q1 2025.
Kuwait and UAE implement key financial reforms
In Kuwait, the Council of Ministers approved the long-delayed financing and liquidity law, which should enhance fiscal financing flexibility and pave the way for government debt to rise from its currently low levels. In the UAE, the government continues to advance the Dirham Monetary Framework, with the dirham’s share in the UAE DCM increasing to 24.9 percent at the end of Q1 2025 (up from 0.5 percent in 2020). Additionally, Fitch said that the UAE Central Bank has initiated the development of a Sustainable Islamic M-Bills program, while the Qatar Central Bank has issued a Sustainable Finance Framework.
