The GCC's total debt capital market surpassed the $1 trillion milestone in November 2024, marking an 11% increase compared to the previous year. Saudi Arabia's substantial share, constituting approximately 43% of the GCC's total debt, highlights its financial influence within the region.
A significant portion of Saudi Arabia's debt instruments is structured as sukuk, accounting for 63% of its total debt. The remaining 37% comprises conventional bonds. The currency composition of these issuances is predominantly in US dollars and Saudi riyals , with other currencies making up the balance.
The Kingdom's robust debt issuance is largely driven by the financing requirements of its ambitious Vision 2030 initiative, aimed at diversifying the economy beyond oil dependence. Mega-projects under this vision necessitate substantial capital, prompting increased activity in both domestic and international debt markets.
Fitch Ratings anticipates that Saudi Arabia's active participation in the debt capital market will persist into 2025. The agency cites the need to fund government projects, address maturing debt obligations, manage fiscal deficits, and achieve diversification objectives as key factors propelling this trend.
In terms of credit quality, approximately 81% of Fitch-rated GCC US dollar sukuk are classified as investment-grade, with no defaults reported. This reflects the financial stability and creditworthiness of issuers within the region, including Saudi Arabia.
The broader GCC region is expected to maintain its status as one of the largest emerging-market dollar debt issuers in 2025 and 2026, excluding China. The region also stands as a global leader in sukuk issuance and investment, further solidifying its prominence in Islamic finance.
However, potential challenges loom on the horizon. Fitch Ratings warns that geopolitical uncertainties in the Middle East could impede the growth trajectory of the GCC's debt capital markets. Additionally, complexities related to Sharia compliance, particularly concerning AAOIFI Standard 62, may pose risks to sukuk structures.
Despite these concerns, the outlook remains positive. Fitch projects that the US Federal Reserve will reduce interest rates by 125 basis points to 3.5% by the fourth quarter of 2025. It is anticipated that most GCC central banks will mirror this monetary easing, creating a more favorable funding environment for issuers.