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Slower growth seen for global sukuk issuances in 2023

January 12, 2023
islamic finance

Fitch Ratings says medium-to-long term outlook is positive amid intact Islamic investor demand

Global sukuk issuance are likely to rise at a slow pace in 2023 amid market volatilities but will remain a key funding source in core Islamic finance markets, according to a new report from Fitch Ratings.

The medium-to-long term outlook is positive amid intact Islamic investor demand, issuer refinancing needs, and government support in core markets, the report added.

Sukuk issuance from the core markets in 2022 fell 7.9% to 244.3 billion versus a year ago, the report said. This was due to higher oil prices (which is forecast at 85/barrel for 2023), 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.

Global outstanding sukuk reached 765.3 billion in 2022, 7.6% higher than a year ago. Sovereigns and multilaterals remain the main issuers. Defaulted sukuk were low at 0.21% of all issues. Outstanding ESG sukuk volumes expanded 62.9% in 2022, mainly due to low-base effect, reaching 24.5 billion (3% of global sukuk volumes).

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