GCC countries, Malaysia may borrow more: Fitch

KUALA LUMPUR: Borrowing needs and fiscal deficits are set to expand in sukuk-issuing countries, like the Gulf Cooperation Council (GCC) economies and Malaysia, Fitch Ratings said.

This is due to the oil price fall and the large economic stimulus packages launched to mitigate the Covid-19 fallout.

Fitch expects benchmark Brent oil prices to average US$35 per barrel this year due to oversupply.

“While sukuk issuers like Indonesia could benefit from lower oil prices as they are net oil importers, the negative effects of lower commodity export prices and reduced tourism revenues will lead to budgetary pressures.

“The risks to Turkey come mainly from deterioration in global financial conditions. Banks face increased risks to their credit profiles,” the firm said in a statement today.

Fitch said jurisdictions like Saudi Arabia, which raised 15 billion riyals in March, had the benefit of their ability to issue local-currency sukuk.

This is due to their established domestic debt markets, in contrast to most other GCC jurisdictions which lack local market depth.

Sukuk issuance with a maturity of more than 18 months from the GCC region, Malaysia, Indonesia, Turkey and Pakistan rose six per cent last year.

The volume of outstanding Fitch-rated sukuk reached US$105 billion at the end of the last quarter of 2019, of which about 32 per cent is estimated to mature in 2020-2022.

Fitch said the issues remained concentrated in Saudi Arabia (38.5 per cent), the United Arab Emriates (16.2 per cent), Indonesia (14.3 per cent) and Malaysia (10.7 per cent).

About 83 per cent of issues were investment grade and 17 per cent were speculative grade, it added.

Source: NST