Global sovereign long-term sukuk issuance will grow modestly this year, continuing the expansionary trend of the past few years, Moody’s Investors Service said in a report published recently.

Larger issuers are driving growth in overall volumes, even as some smaller issuers have not sought to refinance maturing repayments, leading to greater market concentration.

“Sovereign long-term sukuk issuance will rise to nearly $75 billion this year from $71 billion in 2019,” said Christian de Guzman, a Moody’s Senior Vice President and the report’s co-author. “We expect that wider fiscal deficits, larger scheduled repayments and a deepening of domestic Islamic financial markets will lead to higher sukuk issuance over the coming years.”

Issuance in 2020 would likely surpass our forecasts should oil prices and demand be durably dampened as a consequence of the coronavirus outbreak, leading to higher deficits and financing requirements among hydrocarbon-exporting issuers, including those in the Gulf Cooperation Council (GCC) and Southeast Asia.

The relationship between fiscal deficits and net sukuk issuance among regular sukuk issuers has become more robust, while recent regulation also foreshadows the entry of new issuers, and reflects the wider acceptance of and demand for sovereign sukuk.

Also, the integration of environmental, social and governance (ESG) considerations into investment mandates is likely to be a factor driving the development of green sukuk offerings.