The GCC countries, Malaysia, Indonesia, and Türkiye have emerged as major debt issuers in the global emerging market (EM) landscape, according to Fitch Ratings. In the first five months of 2024, these countries accounted for 51 percent of all U.S. dollar debt issued by EMs (excluding China), up from 43.7 percent in 2023 and 32.8 percent in 2020. Fitch expects this growth to continue in 2024-2025, driven by government initiatives to develop domestic debt capital markets, diversify funding sources, finance fiscal deficits and government projects, as well as refinance maturing debts.
Sukuk gaining prominence as funding tool
Sukuk, or Islamic bonds, have also gained prominence as a key funding and policy tool, accounting for 12.4 percent of all EM dollar debt issued so far in 2024 (excluding China), up from 15 percent in 2023 and 5 percent in 2017. EM dollar debt issuance (excluding China) exceeded $200 billion in the first five months of 2024, with Saudi Arabia issuing the most debt (18.5 percent), followed by Argentina (9.1 percent), the UAE (9 percent), Brazil (8.5 percent), Türkiye (7.8 percent), Indonesia (5.7 percent), Mexico (5.2 percent), and Chile (3.8 percent).
Inclusion in global bond indices boosts investor demand
The inclusion of the GCC, Malaysia, Türkiye, and Indonesia in global bond indices has supported demand for their dollar-denominated bonds from international investors. Fitch has also upgraded the ratings of Saudi Arabia, Türkiye, Qatar, and Oman over the past 15 months. Expectations of falling interest rates (the U.S. policy rate is forecasted at 5 percent in 2024 and 3.75 percent in 2025) are likely to further boost investor demand for higher-yielding EM debt.
Sukuk issuance dominates domestic debt markets
Sukuk issuance accounts for the majority of domestic debt capital market issuance (across all currencies) in Malaysia (60 percent in 2023), Saudi Arabia (56 percent), and Indonesia (55.3 percent), and is also significant in some other countries. Fitch rates over 70 percent of U.S. dollar-denominated sukuk globally, with close to 80 percent of outstanding rated sukuk being investment-grade in the first quarter of 2024.
Governments actively develop debt and sukuk markets
Governments in the region are actively working to deepen their sukuk and debt markets. In Saudi Arabia, issuance is driven by budget deficits, while in the UAE, issuers are seeking funding diversification despite expected fiscal surpluses. In Indonesia, debt capital market issuance is expected to slow over 2024-2025 due to fiscal restraint and a gradual decline in government debt levels.
Read more: Saudi Arabia issues $1.17 billion in sovereign sukuk across three tranches in June
Malaysia and Türkiye pursue debt market development
The Malaysian government’s slightly expansionary 2024 budget is expected to drive debt capital market growth, with the authorities planning several development initiatives guided by the Ekonomi MADANI framework. In Türkiye, the recent revival in foreign-currency debt issuances signals lower near-term refinancing risks due to improved investor sentiment following the adoption of more conventional macroeconomic policies.
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