Global sukuk slump to slow down in 2023, but will not stop: S&P Global
Global sukuk issuances are expected to continue declining in 2023 to about $150 billion compared to $155.8 billion in 2022 and $170.4 billion in 2021, according to the latest report released by S&P Global.
S&P Global Ratings credit analyst Mohamed Damak expects “lower and more expensive global liquidity, increased complexity, and reduced financing needs for issuers in some core Islamic finance countries to deter the market.”
He added: “However, we see some supportive factors in other areas.”
According to the report, a high inflation rate has prompted major central banks to accelerate interest rate increases, which in turn has reduced global liquidity, along with increasing investors’ risk aversion.
This has also resulted in significantly lower activity among major segments in capital markets in 2022 compared with 2021.
“The sukuk market, as a component of the global capital market, is not immune to these trends. We may see some upside in activity if inflation trends down sustainably and central banks slow the pace of their interest rate increases,” S&P Global said in the report.
According to the analysis, a decline in total sukuk issuances happened in most core Islamic finance countries, with only a few exceptions such as Malaysia and Turkiye which saw marginally higher numbers.
The report also added that issuance in foreign currency also plummeted in 2022.
“We expect this trend to continue in 2023 and forecast sukuk issuance will reduce again to $150 billion, with further risks building,” the report noted.
The report added that corporate firms are expected to contribute to issuance volumes, particularly in countries like Sauri Arabia where economic transformation programs are progressing steadily.
“We also see continued momentum via the energy transition and increased awareness of environmental, social, and governance considerations among issuers in key Islamic finance countries,” said Damak.
He added: “However, the sukuk market seems to be lagging the conventional one when it comes to automation and issuance of digital instruments, which could accelerate growth and make the process more appealing.”