GCC countries, Malaysia, Indonesia, and Turkiye are increasingly major emerging-market (EM) debt issuers, Fitch Ratings says. In the first five months of 2024, they accounted for 51% of all US dollar debt issued by EMs (excluding China; 2023: 43.7%; 2020: 32.8%). The ratings agency expects this growth to continue in 2024–2025, driven by government initiatives to develop the debt capital markets (DCM), diversify funding, finance fiscal deficits, government projects, and maturing debts. Sukuk is also maturing as a key funding and policy tool, accounting for 12.4% of all EM dollar debt issued so far in 2024 (excluding China; 2023: 15%; 2017: 5%).
EM dollar debt issuance (excluding China) exceeded USD200 billion in 5M24, with issuers from Saudi Arabia issuing the most debt (18.5%), followed by Argentina (9.1%), the UAE (9%), Brazil (8.5%), Turkiye (7.8%), Indonesia (5.7%), Mexico (5.2%), and Chile (3.8%). Fitch said it follows the IMF’s definition of EMs, including 44 countries globally.
The inclusion of the GCC, Malaysia, Turkiye, and Indonesia in global bond indices supports dollar bond demand from international investors. Fitch has upgraded the ratings of Saudi Arabia, Turkiye, Qatar and Oman over the past 15 months. Expectations of falling interest rates (US policy rate 2024F: 5%; 2025F: 3.75%) are likely to support investor demand for higher-yielding debt. For sukuk, demand is supported by Islamic banks, which cannot invest in bonds.
Sukuk makes up the majority of domestic DCM issuance (all currencies) in Malaysia (2023: 60%), Saudi Arabia (56%), and Indonesia (55.3%), and is also significant in some other countries. Most Fitch-rated sukuk create an economic effect similar to bonds, are senior unsecured obligations of the issuer, and rank pari passu with other senior unsecured obligations. Sukuk and comparable bonds were priced at similar levels in 2023. Fitch rates above 70% of US dollar sukuk globally, with close to 80% of outstanding rated sukuk being investment-grade in 1Q24.
Saudi Arabia is aiming to deepen sukuk and debt markets, with issuance driven by budget deficits. In the UAE, while surpluses are expected, issuers are seeking funding diversification. In Indonesia, we expect DCM issuance to slow over 2024–2025, because of fiscal restraint and an assumed continued gradual fall in government debt. Indonesia has the largest share of DCM in the ASEAN (end-2023: 24% outstanding), followed by Singapore (22%) and Malaysia (20%).
The Malaysian government’s slightly expansionary 2024 budget will drive DCM growth, with the authorities planning several development initiatives guided by the Ekonomi MADANI framework. In Turkiye, the recent revival in foreign-currency debt issuances signals lower near-term refinancing risks due to improved investor sentiment since Turkiye’s adoption of more conventional macroeconomic policies.
Outstanding EM dollar debt (excluding China) reached USD2.3 trillion at end-May 2024, with Mexico having the majority (11.4%), followed by Argentina (8.5%), the UAE (8.5%), Saudi Arabia (8.4%), Brazil (7.9%), Turkiye (5.7%), Indonesia (5.7%), Chile (4.2%), and Qatar (3.5%). Across all currencies, 16.5% of all debt in EMs (excluding China) were issued by the GCC, Malaysia, Indonesia, and Turkiye in 5M24. Sukuk was 5.2% of all EM debt issued year-to-date in 2024.
In the J.P. Morgan Corporate Emerging Markets Bond Index, the GCC, Kuwait, Indonesia, Malaysia and Turkiye collectively had 23.2% market capitalisation in May 2024. However, the index does not include sovereigns, who are key issuers in these countries.
Moreover, only sukuk compliant with the AAOIFI sharia standards and guidelines issued by the Higher Sharia Authority of the UAE central bank will be included in the J.P. Morgan Global IG Sukuk Index as of end-May 2024.
