GCC share of emerging-market dollar debt jumps to 35% in Q1
In its latest analysis, Fitch Ratings forecast that the share is expected to continue rising through 2025 and 2026 as regional governments and corporations increasingly turn to debt capital markets for funding diversification, project finance, and budget support amid fiscal pressures and global economic uncertainty.
The report stated that the total value of the GCC DCM exceeded $1 trillion across all currencies by the end of the first quarter, marking a 10 percent year-on-year increase.
Issuance reached $89 billion in the first three months of the year, up 11 percent from the previous quarter but down 3 percent compared to the same period of 2024.
Despite a slowdown in activity since early April, Fitch noted 'a healthy pipeline' is developing, supported by strong regional and Islamic investor liquidity.
'The GCC DCM continues to be fragmented among its six member countries in its maturity, depth, and credit profile, with Saudi Arabia and the UAE the most mature,' the report stated.
'In Kuwait, Qatar, Bahrain, and Oman, the lack of a link with international central securities depositories such as Euroclear or Clearstream partly hinders foreign-investor participation in the local-currency DCMs,' it added.
According to the global investment banking firm State Street Global Advisors, other regions saw divergent trends. Brazil led the emerging market in local bond returns with a 13.7 percent gain, driven by currency appreciation and rate hikes.
In contrast, Turkiye posted an 8.7 percent decline, reflecting political instability and currency depreciation. These shifts underscore varying macroeconomic dynamics across emerging markets.
In the Kingdom, foreign investors increased their participation in local government debt, accounting for 7.7 percent of the investor base at the end of the first quarter of the year, up from 4.5 percent in 2024.
Fitch noted that pressure from declining oil prices — forecast at $65 per barrel for 2025 and 2026 due to OPEC+ cuts and trade-related volatility — could widen fiscal deficits and lead to increased borrowing.
Among the most vulnerable are Bahrain and Saudi Arabia, while Qatar, Kuwait and Abu Dhabi benefit from substantial sovereign wealth assets. Oman is seen as relatively well-positioned fiscally.
Interest rate expectations are also playing a role in shaping the DCM outlook. Fitch projects the US Federal Reserve to lower rates to 4.25 percent by end of 2025, with GCC central banks expected to follow suit.
Lower rates could support further issuance, as banks and corporates across the region continue to diversify their funding strategies.
Sukuk remains a cornerstone of the GCC's DCM, comprising around 40 percent of the total outstanding by the first quarter of the year.
The region holds over 40 percent of the global sukuk market, though issuance fell 51 percent year on year in the first quarter to $18.2 billion.
Conventional bonds rose 29 percent over the same period. Fitch reported that 83.5 percent of Fitch-rated GCC US dollar sukuk are investment-grade, with 57.8 percent in the 'A' category and the majority holding stable outlooks.
Environmental, social and governance financing is also gaining traction in the region, with GCC countries' ESG DCM surpassing $50 billion in all currencies by the end of the quarter.
National-level regulatory reforms are also reshaping local markets. In Kuwait, the cabinet's approval of a long-delayed financing and liquidity law is expected to unlock new borrowing capacity.
In the UAE, the apex bank continues to advance the Dirham Monetary Framework, with the currency's share in the domestic DCM growing to 24.9 percent from just 0.5 percent in 2020.
Sustainable finance is also gaining momentum, with the UAE developing a Sustainable Islamic M-Bills program and Qatar unveiling a sustainable finance framework.
Despite global uncertainty, Fitch emphasized the resilience of the region's credit quality, noting that no Fitch-rated GCC sukuk or bonds defaulted in 2024 or the first quarter of 2025.
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