Saudi Arabia has been the biggest name in sovereign sukuk for six years. Moody’s Investors Service thinks that is about to change.
In a report published in March 2023, the rating agency said Malaysia, Indonesia and Turkiye will be the largest sovereign issuers in 2023 and 2024. Saudi Arabia, which accounted for the largest single share of long-term sovereign sukuk over the past six years, gets bumped from the top spot. Moody’s expects the largest contribution to come from Malaysia and Indonesia.
Why the ranking shifts
Think of sukuk, the Islamic bonds governments sell to raise money, like a mortgage that has to be rolled over when it matures. Malaysia and Indonesia have more of that rolling over to do. Their deficits are shrinking a little, but not by much.
Saudi Arabia faces the opposite problem, if it is one. Elevated energy prices have improved the fiscal positions of the main issuers, and Moody’s vice president and senior credit officer Alexander Perjessy said supportive but lower hydrocarbon prices should keep bolstering the budgets of energy exporters. Most Gulf Cooperation Council governments were still running surpluses in 2023-2024. “Consequently, GCC issuance in 2023 will be mainly driven by governments’ decisions to refinance or repay maturing sukuk using surplus funds,” he said.
The agency expects global long-term sovereign sukuk issuance to settle at around US$80 billion in 2023, and at US$80-US$85 billion in 2024, after falling for two years. Lower Gulf volumes should be broadly offset elsewhere. “Particularly in Indonesia, where domestic sukuk issuance dipped significantly last year,” Perjessy said.
Malaysia’s numbers
Moody’s expects Malaysia’s fiscal deficit to narrow to around 5% of gross domestic product in 2023-2024, from 6% in 2022. That still leaves it wide enough, the agency said, to support annual sovereign sukuk issuance of US$20bil-US$22bil (RM90.4bil-RM99.5bil) in both years.
Politics plays a part. Moody’s does not expect a major change in fiscal policy under Prime Minister Datuk Seri Anwar Ibrahim, whose government is likely to keep deficits wide through 2024 to back the economic recovery. If around half of gross government financing comes through sukuk, as the agency assumes, issuance stays relatively high.
Anwar’s first budget, tabled on February 24, 2023, also carried several initiatives meant to push Islamic finance further, according to Moody’s.
Two wild cards
The rating agency flagged two new programmes as a small upside risk to its projections. Egypt announced its international sukuk programme in February and issued its first government sukuk. “After many years of anticipation,” Moody’s said, Egypt finally got there. Saudi Arabia, meanwhile, has announced plans for a domestic sukuk savings programme aimed at retail investors.
The practical upshot: if you hold or follow Islamic bonds, the supply is shifting east, from the Gulf to Southeast Asia and Turkiye.
Sources
- Three nations to be largest sovereign sukuk issuers (The Star, Bernama)
- Long-term sovereign sukuk to stabilise at US$80bil in 2023, Malaysia & Indonesia potentially two biggest issuers: Moody's (New Straits Times, by Azanis Shahila Aman)
