Saudi Vision 2030 to benefit global Islamic finance

 

Saudi Vision 2030 to benefit global Islamic finance

Saudi Arabia's ambitious Vision 2030 program, aimed at diversifying its economy away from oil, is poised to bring several advantages to the global Islamic finance sector.

In an interview with Al-Monitor, Nitish Bhojnagarwala, Senior Vice President at Moody's, expressed positivity about the impact of the kingdom's program on the Islamic finance industry. He highlighted that Saudi Arabia boasts the world's largest Islamic banking market, with assets exceeding 3.1 trillion riyals ($830 billion), and approximately 83% of its total banking system assets adhere to Sharia principles.

Bhojnagarwala explained, "As Saudi Arabia's economic growth gains momentum, it will have a positive ripple effect on the broader Islamic finance industry. We anticipate this will benefit both Islamic banks and the Islamic banking market, with sukuk issuance activities also reaping rewards from these initiatives." (Sukuk are Islamic bonds.)

Crown Prince Mohammed bin Salman's Vision 2030 seeks to reduce the kingdom's reliance on fossil fuels by 2030 through investments in green projects, sustainable cities, technology, healthcare, and tourism. Despite signs of progress since the program's launch in 2016, such as setting a 2030 non-oil revenue target of 1 trillion riyals ($270 billion), data from 2021 indicated progress was below the halfway mark at 403 billion riyals ($107 billion).

While Saudi Arabia and Malaysia dominate sovereign sukuk issuance, Moody's market outlook suggests a recent decline in sukuk deals. This decline is attributed to lower volumes from major sovereign issuers, primarily due to improved economic conditions in the Gulf Cooperation Council and Southeast Asia. Factors contributing to this shift include increased female workforce participation, rising energy prices, and economic diversification away from hydrocarbons within the GCC.

Moody's predicts that gross sukuk issuance will range from $150 million to $160 million in 2023, a decrease from the $178 billion reported in the previous year. However, private sector sukuk issuance has seen growth, driven by new issuers, refinancing, and postponed issuances.

For the first half of 2023, sukuk issuance volumes dropped by 28% to $66 billion, largely due to subdued activity from Saudi Arabia, Indonesia, and Turkey. Nevertheless, the growth of Islamic finance is expected to regain momentum in the coming years, driven by green economic agendas and emerging issuers.

The upcoming UN climate change conference, COP28, scheduled for the end of November in the United Arab Emirates, is expected to stimulate the issuance of green sukuk in the Middle East, according to Bhojnagarwala. He anticipates higher growth in green sukuk issuance, noting that while the outlook is promising, the current market base remains relatively small.

Green sukuk issuances in the first half of 2023 amounted to around $6 billion, compared to $4 billion during the same period in 2022. In 2022, the total issuance reached $7 billion, indicating that 2023 is on track to surpass the previous year, marking significant growth in the market.

Bhojnagarwala emphasized that the healthy pipeline of green Islamic deals reflects the increasing emphasis on sustainability by governments and the private sector in the region, integrated into investor strategies. He concluded by stating that this focus on green sukuk is expected to drive acceleration in the coming quarters and years.

Source: https://www.al-monitor.com