RIYADH: Global long-term sovereign and supranational sukuk issuance volumes are poised to moderate in 2026 from the near-record highs witnessed the previous year, according to Moody’s Ratings.
The credit rating agency projected the total will ease to approximately $110 billion this year, driven primarily by a strategic shift in Saudi Arabia’s funding approach, even as lower oil prices pressure hydrocarbon-exporting nations’ fiscal positions.
The moderation comes despite what Moody’s describes as “broadly stable sukuk refinancing needs” and weaker oil prices that might otherwise suggest higher borrowing requirements.
The agency’s forecast assumed Brent crude will average around $60 per barrel in 2026, down from $69 per barrel in 2025, contributing to fiscal deterioration across several major sukuk-issuing nations.
This projection of moderation from Moody’s, however, contrasts with a more bullish consensus emerging from other financial analysis firms.
Fitch Ratings, in a report released in January, characterized the global sukuk market as entering 2026 with “strong fundamentals,” highlighting that 2025 was a record-breaking year with global issuance surpassing $300 billion, a 25 percent year-on-year increase.
This momentum, Fitch noted, is expected to be sustained, supported by the market’s solid credit profile where over 82 percent of rated sukuk are investment-grade.
S&P Global echoed this optimistic outlook, projecting 2026 issuance to hover between $270 billion and $280 billion, driven by factors such as lower oil prices and ongoing monetary easing, presenting a slightly different view on the year ahead.
Saudi Arabia leads the moderation
Saudi Arabia, the largest sovereign sukuk issuer since 2017, will be the primary driver of reduced issuance volumes in 2026.
The Kingdom is continuing to rebalance its funding mix to include a larger share of conventional syndicated loans and export credit agency facilities, moving away from the heavy reliance on domestic sukuk that characterized its borrowing over the past five years.
Moody’s projected that Saudi Arabia’s fiscal deficit will narrow to around 4.1 percent of the gross domestic product in 2026 from an estimated 4.7 percent of GDP in 2025. This improvement reflects the unwinding of last year’s one-off budgetary expenditures, scaling back of some diversification projects, and higher crude oil production volumes.
“We also expect Saudi Aramco’s fixed dividend policy and strong cash buffers to partly shield the government from a larger decline in revenue because of lower oil prices,” the report said.
The government’s latest annual borrowing plan indicates that domestic sukuk issuance will account for at most 30 percent of total financing during 2026, a dramatic decrease from the average of 61 percent recorded between 2020 and 2025. Unlike previous years, the government now expects that most of its financing this year will be met through external borrowing channels.
2025 in review
The moderation forecast for 2026 follows a year of slight increases in 2025, when sovereign and supranational sukuk issuance reached $115 billion, the second highest level on record.
At the end of 2025, the stock of outstanding long-term sovereign and supranational sukuk surpassed $600 billion for the first time, marking a significant milestone for Islamic finance.
Lower issuance by Saudi Arabia and Qatar in 2025 was more than offset by higher issuance elsewhere in the Gulf region, as well as in Indonesia, Malaysia, Turkiye, and Egypt.
Saudi Arabia’s sovereign sukuk issuance fell by 19 percent to $34 billion in 2025, down from $42 billion recorded in 2024 but still above the $29 billion average of 2021-2023.
Liability management operations contributed around $16 billion to the total gross issuance, similar to 2024 levels.
International sukuk reaches record highs
International sukuk issuance reached a record high of nearly $28 billion in 2025, up from $20.5 billion in 2024. International issuance, predominantly in US dollars, accounted for approximately 24 percent of total gross sovereign and supranational sukuk issuance, the highest share since 2017.
The increase was driven by larger issuance volumes from regular issuers and the return of several less frequent sovereign borrowers.
Supranational issuance increased to $6.7 billion in 2025 from $4.7 billion in the previous year, with the Islamic Development Bank driving all of the increase through seven euro-denominated and three US dollar-denominated sukuk totaling approximately $5.3 billion.
Bahrain emerged as the most significant contributor among regularly issuing sovereigns, raising $3.3 billion in 2025 compared to $2.2 billion in 2024.
Several less frequent issuers returned to the international market, including Oman with a $1 billion sukuk after a three-year hiatus, Egypt with a $2.5 billion issuance, and Ras Al-Khaimah refinancing its $1 billion sukuk.
Regional breakdown
In Southeast Asia, Malaysia’s gross issuance increased slightly to $19.6 billion in 2025 as the government financed a larger share of its fiscal deficit through sukuk.
For 2026, issuance is expected to remain broadly unchanged at around $19 billion, with the fiscal deficit narrowing to 3.5 percent of GDP.
Indonesia’s long-term sukuk issuance rose to $21.3 billion in 2025 due to a higher fiscal deficit and increased repayments. Issuance is expected to remain stable at around $21 billion in 2026, with the deficit holding at approximately 2.9 percent of GDP.
Turkiye’s long-term sukuk issuance rose slightly to around $8.8 billion in 2025 despite a narrower fiscal deficit, reflecting increasing use of sukuk instruments.
For 2026, gross issuance is expected to increase to around $9 billion, driven by higher scheduled repayments and supported by monetary policy easing.
In the Gulf Cooperation Council region, Saudi Arabia’s moderation is set to be the dominant story. Elsewhere in the region, issuance is expected to remain in line with the $14 billion recorded in 2025.
Higher domestic refinancing needs in Qatar will be offset by lower needs in Bahrain. Oman’s issuance of around $1.5 billion will be driven by a spike in domestic sukuk refinancing needs.
In the UAE, sovereign sukuk issuance continues to be supported by the government of Sharjah and the UAE federal government, which issued $2.7 billion in 2025 as part of its local currency program.
Sharjah raised $2.6 billion, including a $750 million international sukuk, while Ras Al-Khaimah returned to the market for the first time since 2015.
New entrants to support issuance levels
Despite the expected moderation from established issuers, new entrants into the sovereign sukuk market will provide some support to overall issuance levels in 2026.
Benin issued its first government sukuk in January, raising $500 million to fund budget needs. Algeria also launched its first-ever sovereign sukuk in January, opening subscriptions for up to $2.3 billion to finance infrastructure projects.
Nigeria approved its new external borrowing plan in November, which includes a $500 million sukuk issuance, and Kuwait may also access the sukuk market for the first time in 2026 after announcing it is ready to implement legislation regulating government sukuk issuance.
Among multilateral development banks, the Islamic Development Bank is expected to issue around $5 billion of sukuk in 2026, maintaining its position as the largest and most regular issuer in international sukuk markets.
