UAE’s Debt Capital Market Outstanding Surges to $281 Billion
In a stunning revelation, the UAE’s debt capital market outstanding has skyrocketed by 11.8 percent annually to a whopping $281 billion in the first half of this year. According to a new report by the credit agency Fitch Ratings, a staggering 71.5 percent of these dollars are denominated in US currency.
Projected Growth and Structural Reforms
Data released by Fitch Ratings predicts that the country’s debt capital markets outstanding are set to hit $300 billion in the second half of 2025. Bashar Al-Natoor, the Global Head of Islamic Finance at Fitch Ratings, attributes this remarkable growth to DCM structural reforms, the implementation of the Dirham Monetary Framework, and a resilient investor appetite over the past five years.
Challenges and Climate Change Impact
Despite this growth, Al-Natoor points out that there are still gaps to address in the market. He highlights the nascent dirham market, the concentration of investors in banks, and the preference of corporates for bank financing over bonds or sukuk. Following the UN climate change conference COP28 in the UAE, environmental, social, and governance debt issuance fell by 35 percent to $3.3 billion in the first half of this year, with sukuk dominating the market.
Shariah Standards and Debt Issuance Trends
While Islamic finance is on the rise, many corporates in the UAE still favor traditional bank financing over issuing bonds or sukuk due to perceived complexities in adhering to Shariah standards. Sukuk issuance in all currencies saw a 9.8 percent increase annually, totaling $8.4 billion, outperforming bond issuance which decreased by 44.3 percent to $39 billion.
Government Debt and Ratings
Fitch has assigned ratings to $26.5 billion worth of UAE sukuk, with an impressive 94.3 percent maintaining investment-grade status. The credit rating agency forecasts consolidated UAE government debt at 24 percent of GDP by the end of 2024, well below the ‘AA’ category median. While Abu Dhabi and Dubai are expected to post surpluses, deficits are projected for Sharjah and Ras Al-Khaimah, with Fitch upgrading RAK’s rating to “A+” from “A” in May 2024.