RIYADH: Global sukuk issuance is expected to fall to between $160 billion and $170 billion in 2022 from $181 billion in 2021, said global rating agency Moody’s.
Sukuk, which is also called an Islamic bond, is a debt product issued in accordance with Shariah or Islamic laws.
The drop is expected due to higher oil prices reducing the requirements of sukuk-issuing sovereigns and raised interest rates.
“The improved fiscal position of major sovereign issuers is the main reason for the expected drop in volumes this year,” said Ashraf Madani, VP-Senior Credit Officer at Moody’s.
Madani noted that rising oil prices are decreasing the Gulf Cooperation Council governments’ financing needs.
However, in the Southeast Asia lower government spending is anticipated because of a decline in pandemic-related expenditure, he added.
The global sukuk market saw a year-on-year decline of 10 percent to $92 billion in the first half of 2022.
Moody’s projects the value of issuance to reach between $70 billion and $80 billion in the year’s second half, as high interest rates continue to pressure sukuk activity.
Saudi Arabia, the GCC’s biggest sovereign issuer, has completed its issuance program for the year.
The Kingdom’s domestic market recorded $14.4 billion worth of sukuk sales this year, registering a growth of 185 percent over the last year, Bloomberg reported.
According to Moody’s, the risk of increasing interest rates will remain a challenge for the sukuk market.
Some issuers including corporates and financial institutions have delayed their sukuk offerings given the volatility of interest rates during the first half of 2022.
“We expect this situation to persist into the second half of the year as major central banks continue to raise rates to combat inflation,” the report highlighted.
That said, Moody’s mentioned that the sukuk market is becoming more appealing as an investment tool, as shown by the high demand for recent issuances.
The demand for sukuk is concentrated in international investors in markets that are less exposed to Islamic finance, the rating agency concluded.