In its announcement, FTSE Russell predicted that the accession would include 42 Saudi government instruments at a value of approximately $81.6 billion, accounting for 2.75 percent of the index based on weighted market value to ensure its comprehensiveness and coverage.
Furthermore, FTSE Russell will continue to track both Saudi sukuk and bonds as part of its standalone FTSE Saudi Arabian Government Bond Index.
FTSE’s decision is in line with the Saudi government’s efforts to enhance the efficiency of the local debt market. These efforts are supported by the Kingdom’s desire to diversify its public debt and investor base and to keep aligned with best global market practices and standards.
The inclusion of the Saudi government sukuk in the index is expected to have significant impact on the local debt market, as it will increase market liquidity.
The development of the debt market in Saudi Arabia is an essential part of the Financial Sector Development Program. This is part of the Saudi Vision 2030, and its main goal is to develop and diversify the financial sector, including the debt market regionally and internationally, to support the development of the Kingdom’s economy.
The Ministry of Finance and the National Debt Management Center have played a major role in the development of the debt market in the Kingdom, especially the sovereign debt market. The National Debt Management Center was established to secure the Kingdom’s financing needs with the best financing costs in the short, medium, and long term under an acceptable degree of risk in compliance with financial policies. It also seeks to maintain Kingdom’s ability to access different international financial markets at fair pricing.
The Kingdom’s sovereign risk debt market has gained significant recognition from the international debt market and investors. This is because of the Kingdom’s financial strength, excellent credit rating and clean record in terms of defaults. The Kingdom took the advantage of these strengths and raised €1.5 billion ($1.8 billion) debt in 2021 with a negative yield. This was the largest negative tranche of negative sovereign debt issued outside of the EU zone.
It is expected that the inclusion of Saudi sukuk in the FTSE Russell Emerging Markets Government Bond Index will increase foreign cashflows to the Saudi local debt market. It will also strengthen the local capital debt market because the index is one of the leading indices monitored by fund managers and international investors used to match the return of the index through passive investment.
• Talat Zaki Hafiz is an economist and financial analyst
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