Global sukuk issuance will reach about $160 billion-$170 billion in 2024, from $168.4 billion at year-end 2023 and $179.4 billion in 2022, Standard & Poor’s said in a report.
The drop in issuance volumes in 2023, which mainly resulted from tighter liquidity conditions in Saudi Arabia’s banking system and Indonesia’s lower fiscal deficit, was somewhat compensated by an increase in foreign currency-denominated sukuk issuance.
Better visibility on the medium-term trajectory of interest rates, particularly toward the end of 2023, benefited foreign currency-denominated sukuk issuance, which increased by a third in 2023, compared with 2022.
S&P expects interest rates to remain broadly supportive in 2024. Although the Fed might cut interest rates later than markets expect, financing needs in core Islamic finance countries remain high, given ongoing economic transformation programs. It is also worth noting that Saudi Arabia and its Vision 2030 program boosted issuance in 2023 and will continue to do so in 2024.
Another area of strong growth are sustainable sukuk, whose issuance volumes continued to increase in 2023, albeit from a low base. As Islamic finance remains concentrated in oil exporting countries that aim to reduce their carbon footprints, the increase in sustainable sukuk issuance is expected to continue. Similarly, digitalization could unlock some opportunities as it could streamline sukuk issuance, S&P said. Yet, this would require the harmonization of legal documents and a standardized interpretation of the Sharia.
Local currency-denominated sukuk issuance dropped by 16.8% year-on-year, primarily due to lower issuances in Saudi Arabia and Indonesia. Liquidity preservation in the banking system was at the top of Saudi Arabia’s agenda, as demonstrated by the government’s and its related entities’ continued liquidity injections in the banking system and a reduction in local currency-denominated sukuk issuance. In Indonesia, rapid fiscal consolidation and an associated drop in the government’s financing needs reduced the government’s local currency-denominated sukuk issuance.
In contrast, the UAE’s and Turkiye’s local currency-denominated issuances increased, thanks to higher government issuances. We expect an increase in issuance in the UAE over the next few years as authorities continue their efforts to develop the local capital market.
Also published on Medium.
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