The United Arab Emirates (UAE) has emerged as the third-largest US dollar debt issuer among emerging markets, excluding China, accounting for 8.9 percent of the total in the first half of 2024. This places the UAE behind Saudi Arabia and Brazil in terms of debt issuance. Fitch Ratings has predicted that the UAE’s debt capital market outstanding is set to exceed $300 billion in the second half of 2024. The growth in the UAE’s debt capital market can be attributed to structural reforms, the implementation of the Dirham Monetary Framework, and strong investor interest over the past five years.
Despite the positive growth, there are still challenges that need to be addressed in the UAE’s debt capital market. The market for the UAE dirham remains relatively underdeveloped, the investor base is heavily concentrated in banks, and many corporates prefer bank financing over bonds or sukuk. Furthermore, some issuers face complexities in complying with Shariah standards when issuing sukuk. In the first half of 2024, debt capital market outstanding in the UAE increased by 11.8 percent year-on-year to $281 billion. Sukuk issuance saw a 9.8 percent increase in all currencies, outpacing bond issuance, which declined by 44.3 percent.
Fitch Ratings has assigned ratings to $26.5 billion of UAE sukuk, with 94.3 percent of them being investment-grade. Following the COP28 in the UAE in 2023, the issuance of environmental, social, and governance (ESG) debt slowed by 35 percent in the first half of 2024, amounting to $3.3 billion. The majority of ESG debt issuance in the UAE was in the sukuk format. In April 2024, the regulator extended fee exemptions for listing ESG bonds and sukuk, signaling a commitment to promoting sustainable finance in the country.
Looking ahead, Fitch Ratings forecasts the UAE Government’s consolidated debt to be at 24 percent of GDP by the end of 2024. Different emirates within the UAE have varying debt profiles, with Sharjah standing out due to a higher debt burden. Dubai took steps to repay Dh29 billion in market and private debt in 2023. Fitch anticipates budget surpluses in Abu Dhabi and Dubai, while deficits are expected in Ras Al Khaimah (RAK) and Sharjah. Overall, the UAE’s debt capital market is poised for continued growth, fueled by structural reforms, investor appetite, and a favorable regulatory environment.
In conclusion, the UAE has established itself as a key player in the global debt capital market, with steady growth and a strong investor base. While challenges remain, such as the need to diversify funding sources and address compliance issues, the overall outlook for the UAE’s debt market is positive. With ongoing reforms and a commitment to sustainable finance, the UAE is well-positioned to attract further investment and solidify its position as a leading emerging market for debt issuance. As the market continues to evolve, stakeholders in the UAE’s debt capital market can expect to see more opportunities for growth and innovation in the coming years.
