Saudi Arabia’s year-to-date (YTD) domestic sukuk issuance recently reached SR84 billion ($22.4 billion), an increase of 45% compared to the same period last year, said global credit rating agency Moody’s Investor Service in a new report.

Over the past three years, the government has developed a well-functioning and increasingly deeper domestic sukuk market that has allowed it tap into growing domestic and international demand for

Shariah-compliant fixed income assets. This, in turn, has helped diversify its funding sources compared to what was available during the oil price shock of 2015-16 and ease liquidity pressures amid a more than doubling of government financing needs this year.

Key points:

•    Moody’s estimates that the deficit will reach nearly 11% of GDP in 2020, up from 4.5% of GDP in 2019, and drive a commensurate increase in the government's gross financing need, which Moody’s estimates will rise to around $85 billion in 2020 from $41 billion in 2019.

•    Although nearly 40% of this larger financing need will be met by a drawdown of the government's fiscal reserves on deposit with the Saudi Arabian Monetary Authority (the central bank), Moody’s estimates that nearly half of the total financing will come from sukuk issuances, as a result, Moody’s expects gross government sukuk issuance to nearly double this year to around $40 billion from $21 billion in 2019.

•    During January-September, government issued around SAR84 billion ($22.4 billion) through the established local-currency sukuk program, an increase of 45% compared to the same period a year earlier.

•    Meanwhile, the government also placed unlisted sukuk into the portfolios of the AGIs (autonomous government institutions) – namely the General Organization for Social Insurance (GOSI) and the Public Pension Agency (PPA) – which Moody’s estimates amounted to an additional SR45 billion ($12 billion), bringing total gross sukuk issuance in January-September to nearly $35 billion or more than double the amount of issuance over the same period in 2019. – TradeArabia News Service