Saudi sukuk index entry to broaden debt market

Saudi Arabia’s local-currency debt market is poised to attract greater foreign participation as riyal-denominated government sukuk enter JPMorgan’s Government Bond Index-Emerging Markets series from 2027, according to Fitch Ratings.

Fitch said the planned inclusion should draw additional overseas investment into a market that is already more developed than local-currency debt markets elsewhere in the Gulf Cooperation Council. Foreign investors accounted for 15% of Saudi sovereign primary debt issuance in the first half of 2026, up from 12% in 2025 and 8% in the first quarter of this year.

JPMorgan will begin adding eligible Saudi government sukuk to the GBI-EM indices on January 29, 2027, through a phased process. Saudi Arabia is expected to have a weight of about 2.52% in the GBI-EM Global Diversified index once inclusion is completed.

The Ministry of Finance said eight riyal-denominated government sukuk issues, with a combined nominal value of about $69 billion, are expected to be covered by the JPMorgan inclusion. Bloomberg Index Services has separately decided to add eligible Saudi riyal government sukuk to its Emerging Market Local Currency Government Index at the end-April 2027 rebalancing.

Fitch said riyal sovereign sukuk issuance reflects government efforts to establish a domestic yield curve, improve local-market liquidity and reduce dependence on foreign-currency financing. All listed riyal-denominated debt instruments are structured as sukuk, helping meet demand from Islamic banks, which remain important investors in the market.

The index additions follow measures designed to make the domestic debt market more accessible to international institutions. These include opening the primary dealer programme to international banks, improving settlement arrangements, introducing an over-the-counter settlement framework in 2025 and strengthening links with international central securities depositories including Euroclear.

The International Monetary Fund said in its 2026 consultation on Saudi Arabia that substantial progress had been made in developing the local-currency debt market through more predictable sovereign issuance, stronger market infrastructure and improved access for domestic and foreign investors. It said inclusion in the JPMorgan and Bloomberg indices could generate additional foreign inflows, although their timing and scale would depend on market conditions and investor sentiment.

Saudi Arabia’s National Debt Management Center put total government debt at SAR1.685 trillion, or about $449 billion, at the end of the second quarter of 2026. Debt was equivalent to 33.9% of projected gross domestic product, according to the centre.

Domestic government borrowing has expanded alongside the kingdom’s financing requirements. Outstanding domestic indebtedness stood at SAR1.043 trillion at the end of March, compared with SAR943.4 billion at the end of 2025 and SAR738.3 billion a year earlier.

Monthly local sukuk sales have continued through 2026. The National Debt Management Center allocated SAR1.64 billion in its September issuance across six tranches maturing between 2029 and 2041. August’s allocation was SAR9.518 billion, while July’s was SAR5.349 billion.

The government has also used liability-management operations to concentrate liquidity in benchmark maturities. Saudi market authorities have focused issuance and buybacks on key on-the-run tenors, while trading and post-trade infrastructure has been expanded to make local securities easier for international investors to access.

Fitch’s assessment comes as Gulf exchanges play a growing role in regional capital raising, though much hard-currency debt continues to be listed offshore. Saudi Exchange remained the GCC’s largest stock market in September, accounting for about 63% of the region’s combined equity market capitalisation of roughly $4 trillion, Fitch said.

The ratings agency said domestic debt-market development across the Gulf continues to face structural constraints because corporate financing remains heavily oriented towards bank lending. Saudi Arabia stands apart in having a comparatively developed riyal market, supported by sustained sovereign issuance and measures intended to broaden the investor base.

The kingdom’s government sukuk are already represented in other international benchmarks. FTSE Russell began including Saudi riyal sovereign sukuk in its Emerging Markets Government Bond Index in 2022, following an announcement in 2021 that eligible securities would be phased into the benchmark.