KUALA LUMPUR: According to Moody’s Investors Service, Malaysia, Indonesia, and Turkiye will overtake Saudi Arabia. As the leading sovereign issuers in 2023–2024. Which had the highest proportion of long-term sovereign sukuk issuances over the previous six years.
Although budget deficits have been modestly reducing. The rating agency anticipates Malaysia and Indonesia to contribute the most, in part due to increased and ongoing sukuk refinancing needs.
According to a research, “Malaysia’s fiscal deficit is anticipated to decrease to roughly 5% of the gross domestic product (GDP) in 2023-2024 from 6% in 2022. But will remain large enough to support annual sovereign sukuk issuance of US$20bil-US$22bil (RM90.4bil-RM99.5bil) in both years. No significant changes in fiscal policy are anticipated under the incoming administration of Prime Minister Datuk Seri Anwar.
Who is likely to maintain large fiscal deficits through 2024 in order to support economic recovery, according to Moody’s. Considering that approximately half of the gross government financing will be satisfied by sukuk issuances.
It was stated that this would maintain reasonably high levels of gross sukuk issuance. According to Moody’s, the Prime Minister unveiled a number of policies in his first Budget 2023. Which was presented on February 24, 2023, to encourage further development of Islamic finance.
Sovereign sukuk issuances have become an essential component of the financial landscape in recent years, particularly in countries with significant Muslim populations. These Islamic financial instruments have gained popularity due to their compliance with Shariah law, which prohibits the collection and payment of interest. As a result, sukuk has emerged as a vital tool for governments seeking to diversify their funding sources and tap into the growing pool of Islamic finance investors.
The growth of sovereign sukuk issuances can be attributed to the increasing demand for Shariah-compliant financial products. This demand is driven by the expanding middle class in Muslim-majority countries, as well as the rising interest in Islamic finance from conventional investors.
The development of sukuk markets has also been supported by governments and regulatory bodies, which have implemented policies and frameworks to facilitate the issuance of these instruments. As a result, the sukuk market has experienced significant growth, with an increasing number of countries issuing these instruments to finance their budget deficits and infrastructure projects. The significance of Malaysia, Indonesia, and Turkiye emerging as the largest sovereign sukuk issuers cannot be overstated.
These countries have well-established Islamic finance sectors, with a strong presence of Shariah-compliant banks, insurance companies, and other financial institutions. The growth of sukuk issuances in these countries is expected to further deepen their financial markets, attracting more investors and promoting economic development.
Moreover, the increased issuance of sukuk is likely to contribute to the development of more sophisticated Islamic financial systems, which can provide a stable source of funding for governments and corporations alike. The anticipated increase in sukuk refinancing needs in Malaysia and Indonesia is a natural consequence of their growing economies and expanding fiscal deficits. As these countries continue to invest in infrastructure projects and social programs, their financing requirements are likely to rise, driving the demand for sukuk issuances.
The fact that approximately half of the gross government financing in these countries will be satisfied by sukuk issuances underscores the importance of these instruments in their financial systems. As the sukuk market continues to evolve, it is likely to play an increasingly vital role in supporting the economic growth and development of these countries, as well as other Muslim-majority nations.
