Global Sukuk issuance likely to rise at slow pace in 2023 amid volatilities

Global sukuk issuance are likely to rise at a slow pace in 2023 amid market volatilities and remain a key funding source in core Islamic finance markets, Fitch Ratings says. Sukuk issuance from the core markets (including multilaterals) in 2022 fell 7.9% to USD244.3 billion versus a year ago. This was due to higher oil prices (2023 forecast: USD85/barrel), rising rates (US policy rate 2023 forecast: 5%), and geopolitical drivers. However, it outpaced bond issuance in core markets, which fell 22.1% in the same period. The medium-to-long term outlook is positive amid intact Islamic investor demand, issuer refinancing needs, and government support in core markets.

“The high oil prices have buoyed the fiscal profile of oil-exporting sovereigns like the Gulf Cooperation Council and Malaysia with lower funding needs. However, their drive to diversify funding sources can propel sukuk growth,” said Bashar Al-Natoor, Global Head of Islamic Finance at Fitch. “On the other hand, funding gaps will remain for oil importers like Indonesia, Turkiye and Pakistan, which sukuk could help plug.” Challenges could rise from rising rates, lower global investor interest in emerging-market debt, and political risk.

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