Sukuk outlook stable as new economic risks transpire

Jinan AlTaitoon, CESGA Senior Research Analyst, London Stock Exchange Group (LSEG)

The world is facing a significant risk of recession this year that could worsen in 2023, according to the IMF. A report from Refinitiv examines the impact of recent economic developments on the prospects of the global sukuk market in the next five years.

  1. A new sukuk issuance record had been set in 2021 for the fifth consecutive year, reaching a total of US$196.5bn on the back of COVID-19-related sovereign issuance.
  2. International sukuk issuance slowed in H1 2022 as USD issuances dropped by 10 percent YoY as a stronger dollar drove issuers to concentrate their borrowing in domestic markets.
  3. Sukuk markets fared better than emerging market bonds, with the former supported by a boom in oil prices and most issuers’ limited exposure to the Ukraine conflict.


Refinitiv has launched its Sukuk Perceptions and Forecast Study 2022: Navigating a New Environment.

Global sukuk issuance moderated in the first half of 2022 reaching US$100.9bn, marginally lower than US$104.2bn issued in H1 2021. Although issuance momentum was strong at the start of the year, new global risks emerged that would introduce a new economic environment for the sukuk market.

Historical sukuk issuance 2018 to H1 2022

By the second quarter, sukuk issuance began to slow as the Federal Reserve and other central banks embarked on a global monetary tightening cycle to mitigate soaring inflation, coupled with the surge in oil prices that reduced government borrowing needs in core sukuk markets.

With these developments, the now mature sukuk market has entered uncharted territory that is shifting market dynamics and leaving the near-term outlook uncertain, with differing views on the market’s likely direction.

Stable outlook for sukuk supply despite global headwinds

Following a five-year record streak, global sukuk issuance is set to moderate in 2022. The Refinitiv sukuk supply and demand model projects sukuk issuance to settle at US$185bn by the end of the year.

Looking further ahead, issuance is projected to grow at an estimated compounded annual growth rate (CAGR) of 6.8 percent over the next five years, reaching US$257bn in 2027.

Conventional bond issuances slowed as geopolitical tensions heightened and multiple rate hikes loomed, causing analysts to predict a parallel effect on sukuk issuance. However, continued robust demand for sukuk and growing budgetary pressures on emerging economies such as Malaysia, Indonesia and Pakistan, have buoyed global issuance so far in 2022.

Mid-year issuances have passed $100bn, reducing the likelihood of a significant drop in issuance over the full year.

The model projects the supply-demand gap to narrow to US$81.4bn in 2022 and US$69.1bn in 2023. The gap is projected to then expand to US$101.4bn by 2027, as 52 percent of presently outstanding sukuk mature by the end of 2027, causing a considerable reduction in sukuk supply compared with the past five years.

Higher rates hinder issuers’ attraction to international sukuk markets

International sukuk issuance slowed in 2022, despite strong activity from issuers capitalising on high demand from international investors earlier in the year.

Dollar sukuk issuance amounted to US$22bn in H1 2022, down 10 percent from US$33.2bn in H1 2021, as the Federal Reserve’s tightening policy strengthened the dollar, leading issuers to concentrate their borrowing in domestic markets.

Economists project further increases will lift the benchmark rate to a range of 3.25 percent to 3.5 percent by the end of the year, which will likely deter some issuers from international markets.

Sukuk issuance by market of issue 2018 to H1 2022

For more insights and key findings, read the report.

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