GCC Debt Capital Markets to Hit $1 Trillion

According to (Fitch Ratings), the debt capital markets (DCM) in the Gulf Cooperation Council (GCC) countries are expected to experience significant growth in 2025. The GCC will remain one of the largest issuers of emerging-market dollar debt (excluding China) and continue to be the largest sukuk issuer and investor globally.

Oil Revenues: A Key Driver for DCM Growth

Oil revenues remain a central factor in driving the growth of GCC’s DCMs. With a forecasted decline in oil prices (to $70 per barrel in 2025 and $65 in 2026), the sovereign debt issuance is likely to rise.

Why does this matter?

• Moderate global demand and ample supply will provide significant opportunities for DCM growth.
• GCC banks and corporations will also likely diversify their funding sources via DCMs.

Sukuk: The Dominant Force in GCC Debt Markets

By the end of November 2024, GCC debt markets are projected to reach $1 trillion, with 40% of that amount being sukuk.

Why is sukuk important?

• Sukuk are Sharia-compliant financial instruments and are gaining significant popularity worldwide.

Key Stats:

• 70% of USD sukuk from GCC countries are rated by Fitch.
• 81% of these sukuk are investment-grade, with no defaults reported.

Fed Rate Cuts: Unlocking New Opportunities for Funding

Fitch expects that the Federal Reserve will cut rates to 3.5% by the end of Q4 2025, and many GCC central banks are likely to follow suit. This will make the funding environment more favorable for debt markets.

Challenges and Risks: What Could Hinder Growth?

• Regional tensions and Middle Eastern conflicts may slow down the growth of GCC debt markets.
• However, four out of six sovereigns in the region hold investment-grade ratings with Stable Outlooks.

Key Consideration:

• Sharia complexities and AAOIFI Standard 62 could pose risks for sukuk growth.

Fragmentation in DCM Development: Where is the Growth?

• Saudi Arabia and UAE have the most developed DCMs.
• Qatar, Bahrain, and Oman are also growing.
• Kuwait has the least mature market but is in the process of updating its liquidity laws.

New Opportunities Ahead: Regulatory Changes for Investment

Recent changes in fund passporting regulations across the GCC may open up new investment options in the region’s DCMs.

Conclusion: A Bright Future for GCC Debt Markets

Given the favorable financial conditions and new investment opportunities, GCC debt markets are poised to present golden opportunities for investors and issuers in 2025 and beyond.