Global sukuk issuance to reach about $160bn-$170bn in 2024

Muscat: 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, according to a new report.

“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 Global Ratings said.

“We expect interest rates will 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 programmes,” the rating agency said.

“It is also worth noting that Saudi Arabia and its Vision 2030 programme boosted issuance in 2023 and will continue to do so in 2024,” S&P Global Rating added.

The rating agency further said that another area of strong growth is 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, S&P Global Rating expects the increase in sustainable sukuk issuance will continue.

“Similarly, we think digitalisation could unlock some opportunities as it could streamline sukuk issuance. Yet, this would require the harmonisation of legal documents and a standardised interpretation of the Sharia,” it further added.

Although global sukuk issuance declined by 6.1 percent to $168.4 billion in 2023, compared with $179.4 billion in 2022 the rating agency expects issuance will reach about $160 billion-$170 billion in 2024, thanks to higher financing needs in some core Islamic finance countries and potentially easing global liquidity conditions. “Geopolitical risks and their effects on regional market sentiments as well as potentially postponed interest rate cuts because of stickier inflation could pose downside risks to our forecast,” it added.

The volume of local currency-denominated sukuk issuance reduced. Local currency-denominated sukuk issuance dropped by 16.8 percent 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 and its related entities' continued liquidity injections in the banking system and a reduction in local currency-denominated sukuk issuance, the rating agency said.

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,” the agency further added.

Reducing the time, cost, and minimum volume requirements of sukuk issuances could open up the sukuk market to more issuers, the rating agency said. “In addition to traditional risks, including credit market and liquidity risks, investors in digital sukuk will face operational risks related to technology and cyber security. Digital sukuk would also require an Islamic stable coin or a central bank digital currency,” it further added.