KUALA LUMPUR
Moody’s Investors Service estimates that the aggregate fiscal deficit of major sukuk-issuing sovereigns – Saudi Arabia, Malaysia, Indonesia and Turkey – will decline to US$92 billion in 2022 from US$118 billion in 2021 and US$194 billion in 2020.
Moody’s Vice President and senior analyst Alexander Perjessy expects issuance to fall as government deficits continue to narrow because of higher oil prices, lower coronavirus-related expenditure and accelerating economic activity in core sukuk-issuing countries.
“Issuance volumes already dropped 22 per cent in 2021, with the largest decline from the Gulf Cooperation Council (GCC) sovereigns mainly Saudi Arabia,” he said.
Moody’s said among sukuk-issuing sovereigns in Southeast Asia, sovereign issuance contracted by three per cent year-on-year in Malaysia to reach US$19.5 billion despite slightly higher government stimulus spending following the reinstatement of pandemic-related restrictions.
In addition to mostly domestic sukuk issuances in ringgit, in April 2021 Malaysia tapped the international market for its first international sustainability sukuk, comprising US$800 million in 10-year trust certificates and US$500 million in 30-year trust certificates.
Globally, Moody’s said long-term sovereign sukuk issuance is set to drop to US$73 billion in 2022 and US$75 billion in 2023, from US$88 billion in 2021, including issuance by multilateral development banks.
“The decline in issuances will be driven by a number of factors including higher oil prices and recovering economic activity, both of which will boost government revenue and hence reduce financing requirements. We also expect lower government expenditures due to a decline in pandemic-related spending.
“As a result, we expect a further improvement of the fiscal positions for the major sukuk-issuing sovereigns,” it added.
Meanwhile, Moody’s said new entrants into the sovereign sukuk market presented a small upside risk to its issuance projections.
“The potential passage of Kuwait’s new public debt law and Egypt’s recent approval of the Sovereign Sukuk Law will support these countries’ sovereign sukuk issuances in the medium term,” it said.
