Why are GCC sovereigns increasingly turning to sukuk issuance?

Question

Accepted Answer

GCC Sovereigns are Increasingly Turning to Sukuk Issuance Due to High Financing Needs Driven by Moderate Oil Prices and Fiscal Deficits

Moody's Investors Service forecasts that global sukuk issuance will stabilise between US$190 billion and US$200 billion in 2021, following a record nearly US$205 billion in 2020. A significant driver for this market trend is the growing reliance of Gulf Cooperation Council (GCC) sovereigns on sukuk. This increased activity is directly linked to their substantial financing requirements, which stem from a combination of subdued oil prices and considerable fiscal deficits.
Moderate Oil Prices Impacting Government Revenue

The economic landscape for many GCC nations is significantly influenced by global oil prices. When oil prices remain moderate, it directly affects the revenue streams of these oil-exporting countries. This reduction in income necessitates that governments seek alternative or supplementary funding sources to meet their budgetary obligations and development plans.
Wide Fiscal Deficits Necessitating Increased Borrowing

In tandem with moderate oil revenues, many GCC countries are experiencing wide fiscal deficits. These deficits represent the gap between government spending and revenue. To bridge this gap and finance public expenditures, including infrastructure projects and social programs, these sovereigns are compelled to increase their borrowing, with sukuk being a preferred instrument.
Sukuk as a Preferred Islamic Financing Instrument

Sukuk, which represents Shariah-compliant financial certificates, provides an avenue for Islamic finance. For GCC sovereigns, issuing sukuk aligns with the principles of Islamic finance prevalent in the region and offers a structured way to access capital markets. The continued growth and demand for Shariah-compliant products, supported by government policies and digitisation, further encourage the use of sukuk for financing needs.

Reading history

Hide →

This history is cleared when the page is closed.

Why are GCC sovereigns increasingly turning to sukuk issuance?

Loading

Was this article helpful?

Helpful

Not helpful

Report an issue

1

0

0

Share with friends