The UAE’s debt capital market (DCM) is expected to grow to $400 billion in the coming years. This expansion is driven by funding diversification, infrastructure financing, regulatory reforms, and the increasing role of the Dirham Monetary Framework. According to Fitch Ratings, the market has already surpassed $300 billion, reflecting a 10% increase compared to the previous year.
Growth Drivers and Market Stability
Bashar Al Natoor, Global Head of Islamic Finance at Fitch Ratings, highlighted the market’s strong growth. “The UAE’s DCM is on track to reach $400 billion. No defaults in 2024 highlight the market’s stability, supported by favorable funding conditions and the evolving Dirham Monetary Framework,” he said.
The UAE remains a dominant player in the global sukuk market. Currently, 92% of its sukuk are rated investment-grade, and nearly all issuers maintain stable outlooks. In 2024, sukuk accounted for 20.8% of dollar issuances, while Environmental, Social, and Governance (ESG) bonds made up 17.2%.
Strengthening the Role of the Dirham
The dirham’s share in the DCM has grown significantly. By the end of 2024, its contribution increased to 23%, a major jump from just 0.5% in 2020. This shift reflects the UAE’s efforts to strengthen its local currency in financial markets.
Despite this progress, challenges remain. One major concern is the investor base, which is heavily concentrated within banks. Al Natoor pointed out, “Dirham issuance by corporates and banks is rare. While large corporations are beginning to issue debt, the market’s funding culture remains bank-focused.”
Challenges in Sukuk Issuance
In addition to investor concentration, Sharia compliance poses another challenge, particularly with AAOIFI Standard 62. These complexities create risks for sukuk issuances and make it harder for issuers to navigate the Islamic finance landscape.
Despite these hurdles, the UAE’s DCM remains strong. Banks are expected to continue playing a key role as both debt issuers and investors. Ongoing regulatory changes will further diversify the market, making it more resilient and attractive to global investors.
A Promising Future for the UAE’s Debt Market
Looking ahead, the UAE’s DCM is set to play a vital role in the country’s financial sector. The combination of stable debt levels, a growing sukuk market, and regulatory improvements will push the market toward its $400 billion target.
The increasing focus on sukuk and ESG bonds reflects a shift toward a more sustainable and diversified financial system. With these developments, the UAE continues to strengthen its position as a global leader in finance, trade, and investment. Through strategic initiatives and financial innovation, the country remains well-positioned to attract investors and sustain long-term growth.
