The Public Debt Act can improve the issuance of government sukuk
KUWAIT CITY, March 9: According to data released by Moody’s Agency for Investors Services from 2019 to the third quarter of 2021, Kuwaiti Islamic banks have posted the fourth-best growth rate in financing operations in the world, outperforming traditional banks over the course of the COVID- 19 pandemic, Al-Rai reports daily. In a recent report, the agency noted that Kuwait is the fifth-largest main market for Islamic finance in the world, while Saudi Arabia still retains its first position, and pointed out that the passage of the sovereign debt law could encourage sovereign debt issuance . given the importance of Sukuk in the Gulf region. While Moody’s expects the law to be passed sometime this year, given the track record of the parliamentary stalemate, there is a clear possibility that there will be further delays and stresses that the law will alleviate ongoing liquidity pressures.
The report, on the other hand, found that in 2021, global long-term sovereign sukuk issuance, including those by multilateral development banks, declined due to the sharp drop in the funding needs of the main sovereign sukuk issuers, and explained that this decline came on the back of record volumes in sovereigns -Sukuk issuance in 2020, and issuance in 2022 is expected to increase amid continued decline in the government deficit amid high oil prices, a slowdown in COVID-19-related spending and an acceleration in economic activity in countries that are base- spend sukuks. The report added that the volume of long-term sovereign sukuk issuance fell 22 percent to $88 billion in 2021 as sukuk-issuing governments saw their overall financing needs decline, noting that Saudi Arabia, Malaysia and Indonesia’s state sukuk still dominate issuance as they together accounted for about 77 percent of state sukuk issuance by the end of last year, while all of these governments posted lower fiscal deficits in 2021.
Moody’s expects Islamic finance to continue growing despite expectations of a fall in sukuk issuance, and it is also likely that there will be an acceleration in economic recovery and that high oil prices and rate hike decisions will impact the Islamic finance industry this year. The report indicates that Saudi Arabia and Malaysia maintain their leading positions as the two largest markets for Islamic finance and expect increasing penetration of this industry in the short and medium term. The report also notes that Sukuk issuance fell 12% to $181 billion in 2021, reflecting the decline in government financing needs in the Gulf countries and Indonesia as a result of high oil prices and economic recovery, where expected estimates emissions will fall to $160-170 billion this year with continued support for high oil prices
Moody’s expects moderate growth in takaful insurance premiums to continue over the next 2-3 years due to increasing demand for health insurance with an increasing number of health plans in the Gulf, Africa and Southeast Asia implementing mandatory health insurance. Regarding highly competitive markets such as the Gulf markets, the agency suggested that operators currently lacking sufficient scale accelerate investment in technology and seek mergers and acquisitions to build large conglomerates. The agency also expected the issuance of long-term state sukuks to fall to $73 billion in 2022 and $75 billion in 2023, noting that in the Gulf excluding Kuwait, the total financial surplus would drop to $50 billion US dollars in 2022 will grow to about US$13 billion in 2021, offsetting the significant increase in Sukuk’s scheduled redemption. The agency estimates that the total budget deficit of the major sukuk-issuing governments (Saudi Arabia, Malaysia, Indonesia and Turkey) will drop to $92 billion from $118 billion in 2021 and $194 billion in 2020 decline in 2022. Moody’s confirmed that the economic recovery in key Islamic financial markets will spur credit growth and demand for Islamic Sharia-compliant products, with the expectation that Islamic banks’ assets will continue to grow to levels exceeding their conventional counterparts