Global sukuk issuance is expected to fall slightly in 2021 as financing needs narrow amid higher oil prices, lower coronavirus-related expenditures and accelerating economic activity in core sukuk-issuing countries. The coronavirus pandemic drove fiscal deficits sharply wider across major sukuk-issuing sovereigns, leading to a sharp spike in issuance in the second half of the year as market conditions improved. Long-term global sovereign sukuk issuance surged by 49 percent, reaching $109 billion in 2020, compared to $73 billion in 2019. Long-term global sovereign sukuk issuance will amount to $96 billion in 2021, below the $109 billion issued in 2020. Issuance will remain above the pre-pandemic annual average of $65.7 billion in 2017-19, mainly due to financing requirements remaining elevated because of the lingering impact of the pandemic on government fiscal positions, particularly in Malaysia and Indonesia.
Improving macroeconomic environment will support narrowing of fiscal deficits this year. Slightly higher oil prices will increase revenue and narrow fiscal deficits in the Gulf Cooperation Council (GCC), even as deficits for Southeast Asian issuers like Malaysia (A3 stable) and Indonesia (Baa2 stable) remain elevated. Despite a slight narrowing in the fiscal deficits of the largest sukuk-issuing sovereigns due to higher oil prices and the easing of coronavirus related spending, rollover requirements will rise sharply in 2022, reflecting a large amount of sukuk instruments issued by GCC sovereigns falling due, including almost $11 billion from Saudi Arabia. GDP growth in the core Islamic finance countries–the GCC countries, Malaysia, Indonesia, and Turkey–to recover from a sharp recession in 2020. We also assume that the price of oil will stabilize at about $50 per barrel in 2021. Together, these factors underpin a stronger performance by the global sukuk market in 2021 than in 2020.