Specialists in the field of sovereign sukuk issuances are anticipating a shift in the landscape, with Malaysia, Indonesia, and Turkiye poised to overtake Saudi Arabia as the leading issuers in 2023-2024, according to Moody’s Investors Service. This development is based on the countries’ previous six years of long-term sovereign sukuk issuances, which have shown a notable trend. Despite modest reductions in budget deficits, Moody’s expects Malaysia and Indonesia to be the primary contributors to this shift, driven in part by increased and ongoing sukuk refinancing needs.
Analysis of Fiscal Deficits and Sukuk Issuance
A research report highlights that Malaysia’s fiscal deficit is anticipated to decrease to roughly 5% of the gross domestic product (GDP) in 2023-2024, down from 6% in 2022. However, the deficit is expected to remain substantial, supporting annual sovereign sukuk issuance of US$20bil-US$22bil (RM90.4bil-RM99.5bil) in both years. The incoming administration of Prime Minister Datuk Seri Anwar is likely to maintain large fiscal deficits through 2024, aiming to support economic recovery. As approximately half of the gross government financing will be satisfied by sukuk issuances, this is expected to maintain reasonably high levels of gross sukuk issuance.
Moody’s notes that Prime Minister Datuk Seri Anwar unveiled several policies in his first Budget 2023, presented on February 24, 2023, to encourage further development of Islamic finance. These policies are expected to have a positive impact on the sukuk market, contributing to the growth of Malaysia, Indonesia, and Turkiye as leading sovereign sukuk issuers. The rating agency’s anticipation of Malaysia and Indonesia’s significant contribution to this growth is based on their increased and ongoing sukuk refinancing needs, as well as their fiscal deficit management strategies.
Implications and Expectations
The expected shift in the sovereign sukuk issuance landscape has significant implications for the global Islamic finance market. As Malaysia, Indonesia, and Turkiye take the lead, they are likely to influence the development of Islamic finance products and services. The policies implemented by Prime Minister Datuk Seri Anwar, aimed at promoting Islamic finance, are expected to play a crucial role in this development. Moody’s analysis suggests that the maintenance of large fiscal deficits, coupled with the increased use of sukuk issuances, will support the growth of the Islamic finance sector in these countries.
The rating agency’s expectations are based on a thorough analysis of the countries’ fiscal policies, economic recovery strategies, and Islamic finance development plans. As the global economy continues to evolve, the development of Islamic finance is likely to play an increasingly important role. The anticipated growth of Malaysia, Indonesia, and Turkiye as leading sovereign sukuk issuers is a significant trend to watch, with potential implications for the global financial landscape.
Looking Ahead
As the sovereign sukuk issuance landscape continues to shift, it is essential to monitor the developments in Malaysia, Indonesia, and Turkiye. The implementation of policies aimed at promoting Islamic finance, coupled with the management of fiscal deficits, will be crucial in determining the trajectory of these countries as leading sovereign sukuk issuers. The upcoming years will be significant in shaping the future of Islamic finance, and the actions of these countries will be closely watched by specialists and investors alike. As the global financial landscape continues to evolve, the growth of Islamic finance and the development of sovereign sukuk issuances will be important trends to watch, with potential implications for the global economy.
In the coming months, it will be essential to watch for further developments in the policies and strategies implemented by Malaysia, Indonesia, and Turkiye. The impact of these developments on the global Islamic finance market and the sovereign sukuk issuance landscape will be significant. As specialists and investors continue to analyze the trends and implications, it is likely that the growth of Malaysia, Indonesia, and Turkiye as leading sovereign sukuk issuers will remain a key focus area. The future of Islamic finance and the development of sovereign sukuk issuances will depend on the continued growth and development of these countries, making them an important area to watch in the years to come.
