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GCC Debt Capital Market Hits $1 Trillion In 2024, Growth Expected Ahead: Fitch

Image: Getty Images/Imran Kadir
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The Gulf Cooperation Council (GCC) debt capital market surged by 11% year-on-year, reaching an impressive $1 trillion between January and November 2024, according to Bashar Al Natoor, Global Head of Islamic Finance at Fitch Ratings.

Nearly 40% of the debt was raised through sukuk (Islamic bonds), cementing the GCC’s position as the largest global issuer and investor in sukuk. The market is expected to maintain robust growth in 2025, driven by government financing needs, fiscal deficits, maturing debt, diversification strategies, and regulatory reforms.

Key Market Drivers

  1. Government Financing and Diversification Goals:
    • Increased reliance on debt issuance to fund major government projects across the region.
    • Strategic efforts to reduce dependency on oil revenues by diversifying economies.
  2. Oil Revenue Volatility:
    • Declining oil prices, projected to average $70 per barrel in 2025 and $65 per barrel in 2026, are likely to boost sovereign debt issuances.
  3. Favorable Interest Rate Environment:
    • Fitch predicts the U.S. Federal Reserve will cut rates by 125 basis points to 3.5% by Q4 2025, with GCC central banks expected to follow suit, improving borrowing conditions.
  4. Regulatory Advancements:
    • Ongoing reforms, including potential updates to Kuwait’s liquidity law, could enhance borrowing opportunities.
    • Introduction of GCC fund passporting regulations to attract regional and global investors.

GCC Debt Market Landscape

  • Developed Markets:
    Saudi Arabia and the UAE lead the region with the most advanced debt capital markets.
  • Emerging Markets:
    Qatar, Bahrain, and Oman follow as mid-tier players, showing gradual market maturity.
  • Least Developed Market:
    Kuwait remains the least mature, but potential reforms to enable borrowing in capital markets signal future growth opportunities.

Sukuk Market Insights

  • Sukuk Share: Nearly 40% of GCC debt is raised through sukuk.
  • Fitch Ratings: Around 70% of GCC US dollar sukuk are rated by Fitch, with 81% investment-grade and zero defaults recorded.
  • Sharia Compliance Challenges: Complexities tied to standards like AAOIFI Standard 62 could present risks to sukuk growth.

Potential Risks

  1. Geopolitical Uncertainty:
    • The evolving Middle East conflict poses risks to regional economic stability and debt market activity.
  2. Market Fragmentation:
    • Despite progress, the GCC debt market remains fragmented, requiring harmonized policies to drive unified growth.

The GCC is poised to remain a dominant player in emerging-market dollar debt issuance, excluding China, through 2025 and 2026. Enhanced sukuk issuance, coupled with favorable interest rate adjustments and regulatory reforms, is expected to fuel growth.

However, challenges such as geopolitical tensions and Sharia compliance complexities could test the market’s resilience.