RIYADH: The debt capital market in the Gulf Cooperation Council region has surpassed the $1 trillion mark in outstanding debt as of November, fueled by strong oil revenues, according to a recent analysis.

Fitch Ratings’ latest report highlights the growth trajectory of the GCC’s DCM, with expectations that it will remain one of the largest issuers of emerging-market dollar-denominated debt in 2025 and 2026.

The DCM refers to markets where securities like bonds and promissory notes are traded, offering governments and companies a means of securing long-term funding.

Saudi Arabia leads the region’s DCM, followed by the UAE and Qatar. In September, Fitch projected that the Kingdom’s DCM would exceed $500 billion in outstanding debt, driven by the financing needs for mega-projects under the Kingdom’s Vision 2030 and its broader economic diversification strategy.

Bashar Al-Natoor, global head of Islamic Finance at Fitch Ratings, noted that the DCM had grown by 11 percent year on year, reaching the $1 trillion milestone by the end of November 2024. Of this, approximately 40 percent is in the form of sukuk.

“The market is set for further expansion in 2025, driven by the need to finance government initiatives, maturing debt, fiscal deficits, diversification efforts, and ongoing regulatory reforms,” Al-Natoor explained. “We rate about 70 percent of GCC US dollar sukuk, of which 81 percent are investment-grade, with no defaults.”

The report also forecasts that the Federal Reserve is likely to cut rates by 125 basis points to 3.5 percent by the fourth quarter of 2025. This is expected to prompt most GCC central banks to follow suit, creating a more favorable funding environment.

However, Fitch warned that ongoing geopolitical instability in the Middle East could hinder the region’s DCM growth. “While four out of six GCC sovereigns maintain investment-grade ratings with stable outlooks, any escalation in regional conflicts could pose risks,” the agency stated.

Fitch also flagged potential risks related to Sharia compliance, particularly concerning AAOIFI Standard 62, which governs the structure of Islamic finance transactions. The guidelines cover a range of issues, including Shariah-compliant issuance requirements, asset backing, ownership transfers, investment structures, and trading procedures.

The DCM landscape in the GCC remains uneven. While Saudi Arabia and the UAE boast the most developed markets, Qatar, Bahrain, and Oman follow, with Kuwait having the least mature market. Kuwait is reportedly working on updating its liquidity law to facilitate borrowing in capital markets, though the timeline for this reform remains unclear.