KUALA LUMPUR -- The global issuance of sovereign Islamic bonds is expected to exceed a seven-year-old record by 2020, Moody's Investors Service said in a report issued on Tuesday.
The recovery will be supported by the governments of Muslim-majority nations that are running fiscal deficits and need to pay off previous issues with new Islamic bonds, according to the credit rating agency.
The gross issuance in 2018, including long and short-term issues by governments and international organizations, fell 5%, to $78 billion, as higher oil prices partially alleviated the need for financing. The number is a far cry from the record of $93 billion hit in 2012.
Of the combined 2018 issuance, long-term securities made up $54.8 billion. Gulf Cooperation Council member countries issued $22.1 billion of this total, Malaysia $15.5 billion and Indonesia $10.6 billion.
Moody's expects Malaysia, Saudi Arabia and Indonesia to increase their share of the combined issuance as they finance fiscal deficits over the next two years.
Malaysia, a key promoter of Islamic financial tools, relied on Islamic bonds, also known as sukuk, to finance 80% of its fiscal deficit spending in the three years through 2018, the report says. Malaysians elected a new leader in May, and the government now in power has made commitments to fulfill electoral promises. As a result, Malaysia's fiscal 2018 deficit is now expected to be 3.7% of gross domestic product, up from an initial estimate of 2.8%.
The sukuk market, also backed by demand from Islamic financial institutions for Shariah-compliant securities, is considered more stable than that for conventional bonds, according to the report. "A deepening of the global sukuk market will allow sovereigns to diversify further their sources of financing," it says.