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The GCC countries are expected to continue their prominent role as emerging market (EM) issuers of US dollar debt in 2025 and 2026, according to Fitch Ratings.
The region is also projected to remain a major source of dollar-denominated sukuk issuance and investment globally. Several factors are driving this trend, including government initiatives to develop debt capital markets (DCMs), diversification goals, funding deficits, ongoing projects, and substantial upcoming debt maturities.
The GCC DCM, encompassing all currencies, surpassed $1 trillion in outstanding debt at the end of January 2025, marking a roughly 10 per cent year-on-year increase.
GCC banks are expected to issue more than $30 billion in US dollar debt during 2025, and many large GCC corporations are increasingly turning to sukuk and bond issuances to diversify their funding sources.
However, the GCC DCM landscape remains fragmented and is still evolving, with Saudi Arabia and the UAE leading the way in market maturity.
Notably, no Fitch-rated GCC sukuk or bond defaulted in 2024.
Saudi Arabia held the largest share of the GCC DCM outstanding debt (44.8pc) as of end-January 2025, followed by the UAE (29.9pc) and Qatar (12.8pc), with the remaining balance distributed among Bahrain, Oman and Kuwait.
Potential declines in oil prices could further stimulate DCM growth as lower government revenues may necessitate increased borrowing.
Fitch forecasts lower US Federal Reserve interest rates in 2025, which are expected to be mirrored by GCC central banks, creating a favourable funding environment.
Four of the six GCC sovereigns currently hold investment-grade ratings.
In 2024, GCC countries accounted for a quarter of all EM US dollar debt issuance (excluding China), with Saudi Arabia and the UAE leading as the largest EM issuers.
GCC US dollar DCM issuance saw substantial growth of 65.8pc year-on-year in 2024, reaching $133.4bn. New GCC fund passporting regulations may further enhance DCM investment opportunities.
Sukuk constitutes a significant funding mechanism in the GCC, representing approximately 40pc of the region’s DCM outstanding debt at the end of January 2025, with the remaining 60pc in conventional bonds.
GCC countries accounted for just over 40pc of global sukuk issuance. Approximately 80pc of Fitch-rated GCC sukuk hold investment-grade ratings, with about two-thirds in the ‘A’ rating category, and the rest mainly spread across the AA, BBB, BB, and B categories.
The majority of issuers have ‘Stable Outlooks’ (92pc), with the remainder mostly holding ‘Positive Outlooks’.
GCC sukuk issuance expanded by 43pc year-on-year in 2024, reaching $87.5bn, outpacing bond issuance, which saw only 1.1pc growth.
Islamic banks play a significant role in the GCC banking system and are key investors and issuers of sukuk.
The GCC’s ESG (Environmental, Social, and Governance) debt outstanding surpassed $50bn at the end of January 2025, with 44.1pc in sukuk, predominantly concentrated in Saudi Arabia and the UAE. ESG debt issuance constituted a significant portion of dollar debt issuance in the UAE (17pc) and Saudi Arabia (7.3pc) in 2024. ESG debt could enable issuers to attract demand from ESG-focused international investors from the US, Europe and Asia.
Saudi Arabia’s and the UAE’s DCMs are poised for further growth in 2025.
Kuwait emerged as the GCC’s third-largest dollar debt issuer in 2024, with $13.6bn in issuances, driven primarily by banks.
This is notable given the absence of a public debt law that would enable sovereign borrowing.
Historically, US dollar issuances from Kuwait have been sporadic and infrequent, totalling only $11.8bn between 2018 and 2023. Kuwait’s new government intends to revise liquidity laws to facilitate capital market borrowing, but the timeline remains uncertain.
Despite the positive outlook, challenges remain. The DCM investor base is concentrated among banks, and the funding culture continues to be bank-focused. Local-currency debt issuances by corporations and banks are still uncommon in most GCC countries, with the exception of Saudi Arabia, whose Riyal market is more developed but still has room for growth. Sharia complexities, including AAOIFI Standard 62, present risks for sukuk. Finally, the GCC’s DCM remains susceptible to fluctuations in oil prices, geopolitical events, and macroeconomic conditions.
avinash@gdnmedia.bh
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