Moody’s Investors Service has indicated that global sukuk issuance is expected to remain flat or see a modest decline in 2021, breaking a five-year streak of annual growth. The projection, released on September 7, 2021, points to shifting financing patterns among oil-producing nations as a key influence.
The agency noted that stronger crude oil prices have reduced the fiscal pressure on Gulf Cooperation Council (GCC) states, lessening their reliance on debt markets. Brent crude had risen to approximately $72 per barrel by mid-2021, nearly double the low reached in March 2020. This recovery has allowed several Gulf governments to scale back borrowing after expanding issuance during the pandemic.
Data from the first half of 2021 shows total sukuk volume reached $102 billion, a 3% increase compared to the same period in 2020. However, this overall growth masks divergent regional trends. Issuance from GCC countries fell by 19%, with sovereign and quasi-sovereign borrowers in the UAE and Bahrain cutting back sharply — their combined issuance dropped 65% to just $4 billion in the first six months.
In contrast, Southeast Asia continued to drive expansion in the sukuk market. Malaysia and Indonesia saw their combined issuance rise by 22% in the first half, maintaining their dominance in global activity. Malaysia, the world’s largest sukuk issuer, continues to use Islamic bonds to finance its budget deficit, while Indonesia has broadened its sukuk programme to attract international investors seeking Sharia-compliant assets. Both countries have sustained active borrowing to support infrastructure and social spending initiatives.
The decline in GCC sovereign sukuk was identified as the primary factor restraining broader market growth. Moody’s highlighted that reduced borrowing by these governments offset gains elsewhere, particularly in the corporate sector, where issuance showed signs of recovery.
Notable developments in the first half included Saudi Aramco’s inaugural sukuk issuance and the Maldives’ first-ever sukuk offering. These new entrants contributed to diversifying the investor base and expanding the reach of Islamic finance instruments.
Looking ahead, Moody’s projected total sukuk issuance for the full year 2021 to range between $190 billion and $200 billion, down from the record $205 billion achieved in 2020. The agency suggested that future growth could be supported by factors such as the rise of green sukuk, increased participation from new issuers, and deeper market penetration in underdeveloped regions. It anticipates that as more sovereign and corporate entities return to the market and innovative products gain traction, the sukuk sector will resume its long-term upward trajectory.
