Saudi Arabia’s sukuk and bond market will likely cross $500 billion outstanding over the next couple of years, Fitch Ratings has said.

This will be supported by government projects under Vision 2030, deficit funding, diversification, and regulatory reforms, said Bashar Al Natoor, Global Head of Islamic Finance at Fitch Ratings.

The debt capital market rose 18% year-on-year to $407.7 billion outstanding at end-H1 2024, equally split between US dollars and riyal issues. 

Debt issuance equalled 100% of 2023 issuance. Nearly two-thirds of the issuances were in sukuk. 

However, the pace of the kingdom’s debt issuance is anticipated to slow in the second half of 2024, as mega dividends by Saudi Arabian Oil Company (Aramco), the world’s largest oil producer, are used to temper sovereign financing needs. 

The substantial volumes in the first six months made Saudi Arabia the largest US dollar debt issuer in emerging markets, excluding China, and the largest sukuk issuer globally. 

Foreign investors’ share of government local issuances grew to 7.2% of the investor base at the end of the first six months of 2024, compared to a mere 0.2% in 2022 due to changes such as inclusion of Saudi issuances in global bond indices and linkages with global central securities depositories. 

“Although the market is among the most developed in the Organisation of Islamic Cooperation, there is still room to improve compared to other G20 countries,” Al Natoor said, expecting substantial dollar debt issuance to continue in 2025 as oil revenues moderate.

(Editing by Bindu Rai; bindu.rai@lseg.com)