Key highlights from the report.

  • Total sukuk issuance stabilized at $147.4 billion last year compared with $148.4 billion in 2020 but foreign currency denominated issuance increased 10%.
  • Shrinking global liquidity and increasing complexity related to regulatory standards are likely to hold back sukuk issuance in 2022, assuming any adverse COVID-19-related disruption in core Islamic finance countries remains in check.
  • We also expect lower financing needs in some core Islamic finance countries.
  • Therefore, we forecast total issuance of about $145 billion-$150 billion in 2022.

S&P Global Ratings believes that sukuk issuance volumes will be flat at best in 2022 amid lower and more expensive global and regional liquidity, increased complexity, and reduced financing needs for some core Islamic finance countries.

Notably, we assume a period of higher oil prices, together with higher production and tighter spending control, will result in lower financing needs for some core Islamic finance countries.

Amid a tight job market, accelerated inflation readings over the past few months, and increasingly hawkish forward guidance from the U.S. Federal Reserve, we now expect three rate hikes in 2022, with the first expected in May. This would trigger a similar increase in interest rates from Gulf Cooperation Council (GCC) central banks given their currency pegs to the U.S. dollar.

Outside of these broader trends, the sukuk market faced a period of dislocation in 2021 due to the implementation of Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Standard 59. In the United Arab Emirates (UAE), for example, sukuk issuance volume dropped 64%, in part because of the additional complexity introduced by this standard. Although legal solutions were implemented, the change has negatively affected sukuk issuance appetite from issuers and investors. This, combined with the abovementioned factors, leads us to expect sukuk issuance volume will stabilize at about $145 billion-$150 billion in 2022.

However, on a positive note, we see opportunities created by the energy transition in core Islamic finance countries, higher environmental, social and governance (ESG) awareness from regional issuers, and stronger automation using fintech solutions as likely to support future sukuk market growth.

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