The Gulf Cooperation Council’s (GCC) debt capital market (DCM) saw a 7 percent increase to $940 billion by the end of Q1 2024, reported Fitch Ratings in its latest statement. The company forecasts the market to maintain growth this year and the next as it steadily approaches $1 trillion. However, it expects growth to be slower in the quarters following Q1.
Potentially lower oil prices, high interest rates and initiatives to develop the debt capital markets will drive growth in issuances this year, says Fitch. Moreover, four out of six GCC sovereigns are investment-grade and all have a stable outlook. In the last 15 months, Fitch also upgraded Saudi Arabia, Qatar and Oman’s ratings.
GCC’s debt capital landscape
“Most GCC countries have come a long way in developing their DCMs, with the bloc now accounting for almost a third of total emerging-market dollar issuance, excluding China,” said Bashar Al Natoor, global head of Islamic finance at Fitch Ratings.
However, Al Natoor expressed that GCC debt capital markets are in different stages of maturity and less established than more developed regions. In addition, the region’s corporate funding culture gravitates more toward bank loans. “More diverse and wider issuer and investor participation would support development,” added Al Natoor.
Saudi Arabia currently holds the largest debt capital market share in the GCC region with 43 percent. Following closely comes the UAE with 30 percent. Nearly 40 percent of the GCC debt capital market outstanding was sukuk at the end of Q1 2024, while the rest was in bonds. Fitch rates more than 70 percent of the GCC’s U.S. dollar sukuk. However, the region still faces limits with standardization and sharia complexities.
Saudi Arabia seeks to deepen its debt capital market with issuances due to its budget deficits. Moreover, Fitch expects the UAE to do the same despite surpluses. Meanwhile, Qatar’s and Oman’s debt capital markets are contracting. Therefore, Fitch expects these governments to further repay debt in 2024. In Kuwait, the debt law absence limits the country’s funding options. Meanwhile, Bahrain depends on its debt capital market access and GCC funding amid wide deficits.
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