The GCC region’s debt capital market reached a milestone of around $1 trillion outstanding at the end of November 2024 following an 11 percent year-on-year expansion. In its latest analysis, Fitch Ratings expected the GCC region’s debt capital markets to grow further and for the region to remain among the largest emerging-market dollar debt issuers in 2025 and 2026, excluding China.
“It is poised for growth in 2025 on the need to finance government projects, maturing debt, fiscal deficits, diversification goals, and regulatory reforms,” stated Bashar Al Natoor, global head of Islamic finance at Fitch Ratings.
The rating agency also expects the region to remain the largest sukuk issuer and investor globally, noting that 40 percent of its debt capital market is sukuk. Notably, Fitch rates around 70 percent of GCC US dollar sukuk, 81 percent of which is investment-grade, and with no defaults.
Oil revenues to drive market activity
Oil revenues are among the main drivers of GCC debt capital market activity. Fitch expects sovereign issuances to rise as oil prices fall, given modestly rising demand and ample global supply. The agency expects oil prices to average $70 per barrel in 2025 and $65 per barrel in 2026. While not the key funding source, GCC banks and corporates are also likely to diversify through debt capital markets.
Fitch also expects the Fed to cut rates by 125 basis points to 3.5 percent by the end of 2025, and most GCC central banks are likely to follow suit. This should make the funding environment more favorable. However, the evolution of the Middle East conflict is uncertain and escalation could limit debt capital market growth. Despite regional challenges, four out of six GCC sovereigns are investment-grade and have a stable outlook.
The report also revealed that ESG debt reached $48 billion outstanding, with 42 percent being sukuk.
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Uneven market development
Debt capital market development is fragmented across the GCC. Saudi Arabia and the UAE are the most developed, followed by Qatar, Bahrain, and Oman, while Kuwait is the least mature. The new government in Kuwait seeks to update the liquidity law to permit borrowing in capital markets, but the timeline is uncertain. The recent GCC fund passporting regulations could open new debt capital market investment options across the GCC, noted Fitch.
In November, Al Natoor said that the UAE’s debt capital markets have demonstrated robust growth with a 13.1 percent year-on-year increase in outstanding debt to $294.4 billion by the end of Q3 2024. Regionally, the UAE holds the second-largest share of the total GCC outstanding sukuk at 16.2 percent, after Saudi Arabia’s 71 percent share.
“This growth underscores the country’s expanding financial landscape and its strategic positioning in the sukuk market. Sukuk had a share of 20 percent of the total DCM in the UAE, with the rest in bonds at end-3Q24,” he added.
Following the government’s implementation of the Dirham Monetary Framework, the Dirham share in the DCM outstanding rose to 21.1 percent at the end of H1 2024 from only 0.5 percent at the end of 2020. The government also continues to support sustainability initiatives. In April 2024, the regulator extended the fee exemption for listing ESG bonds and sukuk, which can support ESG issuance.
