- The GCC debt capital market grew by 11% year-on-year, reaching $1 trillion between January and November 2024, with 40% of the debt raised through sukuk.
- Oil revenues are key drivers, but falling oil prices could increase sovereign debt issuances, with oil projected at $70 per barrel in 2025 and $65 in 2026.
- The US Fed is anticipated to cut rates by 125 basis points by Q4 2025, with GCC central banks likely to follow, improving the funding environment.
- Challenges include the fragmented nature of GCC debt markets, Sharia complexities, and potential geopolitical risks affecting market growth.
The debt capital market in the Gulf Cooperation Council (GCC) region experienced a remarkable 11% year-on-year growth, reaching $1 trillion between January and November 2024. According to Bashar Al Natoor, Global Head of Islamic Finance at Fitch Ratings, this robust expansion underscores the region’s strong position in the global debt market.
Sukuk Plays a Crucial Role
Sukuk, or Islamic bonds, accounted for nearly 40% of the debt raised, reflecting the region’s strong emphasis on Sharia-compliant financial instruments. Al Natoor forecasts further growth in the debt capital market in 2025, driven by several key factors.
These include the need to finance government projects, address maturing debt, manage fiscal deficits, achieve economic diversification goals, and comply with evolving regulatory frameworks.
Fitch Ratings currently evaluates approximately 70% of GCC-issued US dollar sukuk, of which 81% hold investment-grade ratings. Impressively, the region has seen no defaults in its sukuk market, which reinforces investor confidence.
Regional and Global Standing
The GCC is poised to remain one of the largest emerging-market dollar debt issuers globally in 2025 and 2026, excluding China. It also continues to lead as the largest sukuk issuer and investor worldwide.
Oil revenues have traditionally driven the region’s debt market activity. However, as oil prices are expected to decline to $70 per barrel in 2025 and further to $65 in 2026, sovereign issuances will likely increase to counterbalance reduced revenues.
Favorable Funding Environment
The anticipated monetary policy changes in the United States are expected to positively impact the GCC’s debt market. Fitch predicts the US Federal Reserve will reduce interest rates by 125 basis points to 3.5% by the fourth quarter of 2025. Most GCC central banks are likely to follow this trend, creating a more favorable funding environment.
Challenges and Risks
Despite its strengths, the GCC debt capital market faces certain challenges. The ongoing conflict in the Middle East presents a significant risk, as any escalation could hinder market growth.
Additionally, the complexities surrounding Sharia compliance, particularly issues tied to AAOIFI Standard 62, pose potential obstacles for sukuk issuance.
Fragmentation and Future Developments
The GCC debt market remains fragmented, with Saudi Arabia and the UAE leading in market development, followed by Qatar, Bahrain, and Oman.
Kuwait’s debt market is the least mature, however, efforts are underway to modernize its liquidity law to facilitate borrowing in capital markets. Although the timeline for these reforms remains unclear, they signal the country’s intent to strengthen its financial sector.
The introduction of GCC fund passporting regulations could further enhance regional investment opportunities, paving the way for greater market integration and investor participation. These developments position the GCC as a dynamic hub for debt capital markets globally.
