Emerging market (EM) issuers from the Gulf Cooperation Council (GCC), Malaysia, Indonesia and Turkiye accounted for just over half of US dollar debt issuance in the first half of 2025 (excluding China), according to Fitch Ratings. Large financing needs, diversification goals and upcoming debt maturities were among the main drivers. GCC countries, viewed as relatively safe havens amid US trade tensions, attracted strong foreign inflows.
The GCC debt capital market (DCM) surpassed US$1 trillion outstanding in 1H25, with issuers from the region contributing 35.5% of all EM dollar debt issuance. Growth is expected to continue, particularly from Saudi Arabia’s Vision 2030 projects, UAE funding diversification and Kuwait’s planned re-entry to the DCM later this year.
Malaysia’s dollar debt issuance is expected to slow as the government continues efforts to reduce federal debt. Indonesia is likely to maintain issuance momentum in the second half of 2025, while Turkiye is projected to see modest growth. Lower oil prices and further interest rate declines are expected to support issuance, although risks from US tariffs, geopolitical volatility and sukuk compliance remain.
Sukuk accounted for the majority of DCM outstanding in Saudi Arabia (61.1%) and Malaysia (59.3%) at end-1H25 and were also significant in the UAE (21.9%), Indonesia (18%) and Qatar (17.8%). Demand for sukuk outpaced supply, supported by Islamic banks with adequate liquidity that are restricted from investing in conventional bonds. ESG sukuk represented 41% of EM ESG dollar debt issuance in 1H25.
Foreign investor interest in EM debt is rising, partly driven by diversification away from US assets. Malaysia leads core Islamic finance markets in foreign ownership of domestic government debt at 21.8% in 1H25, followed by Indonesia (14.5%), Turkiye (8.6%) and Saudi Arabia (7.7%). Inclusion of these countries in global bond indices, such as the J.P. Morgan Government Bond Index-Emerging Markets, has further boosted demand.
Overall, EM dollar debt (excluding China) reached US$2.5 trillion at end-1H25, with Mexico, Saudi Arabia and the UAE holding the largest outstanding volumes at 11.3%, 10.1% and 8.7% respectively. Fitch notes that geopolitical risks remain elevated in the Middle East, though DCMs proved resilient during regional conflicts in June.
