UAE’s Debt Market Rises 11.8% to $281Bn in H1, 71.5% Dominated by US Dollars

The UAE’s debt market has demonstrated remarkable strength and expansion, growing by 11.8% to reach a substantial $281 billion in the first half of 2024, with a significant portion denominated in US dollars. This growth highlights the UAE’s robust economic framework and the rising confidence among global investors in the region’s debt instruments. As the global financial environment continues to shift, the UAE’s market adaptability and resilience make it a key player in the international finance arena, attracting more investors seeking stable and profitable opportunities.

Surge in UAE’s Debt Market Valuation

According to the latest analysis by Fitch Ratings, the UAE’s debt capital market is poised to reach a milestone of $300 billion by the second half of 2025. The significant growth is fueled by strategic reforms in the Dirham Monetary Framework and a generally robust appetite among investors, who have been drawn by the stable returns and diversified investment opportunities offered by the UAE market.

Impact of Regulatory Changes and Market Trends

Bashar Al-Natoor, Global Head of Islamic Finance at Fitch Ratings, highlights the impact of structural reforms that have propelled the market’s expansion over the past five years. Despite this growth, challenges such as the nascent dirham market and a bank-centric investor base remain. Many UAE corporates continue to favor traditional bank financing over bonds or sukuk, often citing the complexities of complying with Shariah standards.

Environmental, Social, and Governance (ESG) Considerations

Post-COP28, the UAE saw a 35% decline in ESG debt issuance, totaling $3.3 billion in the first half of 2024, with sukuk comprising 67.5% of this segment. This reflects a global trend where sustainability-focused financial products are becoming increasingly significant, aligning investment with broader social and environmental goals.

Comparative Analysis in the Emerging Markets

In the broader emerging market context, the UAE secured the third position as the largest US dollar debt issuer, trailing only behind Saudi Arabia and Brazil. This positioning reflects the Emirates’ strategic initiatives to enhance its financial market’s accessibility and attractiveness to international investors.

Sukuk Market Dynamics

The Sukuk market in the UAE witnessed a 9.8% annual growth, reaching $8.4 billion and notably outperforming traditional bond issuances, which saw a decline. The dollar-denominated debt market included a significant share of sukuk at 27.7%, though this was a decrease from the previous year’s 35.3%.

Investment-Grade Ratings and Economic Forecasts

Fitch Ratings has assigned an investment-grade status to $26.5 billion worth of UAE sukuk, emphasizing the high quality and low risk associated with these investments. Despite regulatory restrictions affecting certain Islamic and conventional banks regarding sukuk investments, the UAE’s consolidated government debt is projected to remain well below the median for ‘AA’ rated peers, at 24% of GDP by the end of 2024.

Regional Variations and Economic Outlook

The UAE exhibits varied debt profiles across its emirates, with Sharjah bearing a higher debt burden. Meanwhile, Abu Dhabi and Dubai are expected to report fiscal surpluses, with challenges anticipated for Sharjah and Ras Al-Khaimah—though RAK’s credit rating was upgraded to “A+” in May 2024.

A Flourishing Future for UAE’s Debt Market

The UAE’s debt market is rapidly establishing itself as a cornerstone of growth and stability within the global financial landscape. Thanks to continuous reforms, a dedicated emphasis on Environmental, Social, and Governance (ESG) principles, and strong performance in sukuk markets, the UAE is poised for further expansion. This evolving market landscape not only promises attractive investment opportunities for global investors but also reinforces the UAE’s strategic importance as a central financial hub. With these elements, the UAE continues to attract substantial international capital, securing its status as a dynamic player in the world’s economic sphere.