The landscape of digital finance and debt capital markets across the Gulf Cooperation Council is navigating a period of unexpected friction as 2026 progresses. According to a recent assessment by Fitch Ratings, the issuance of U.S. dollar-denominated bonds and sukuk by both sovereign entities and private corporations in the region has slowed significantly. This deceleration follows the recent outbreak of the Iran war, which has forced a recalibration of market expectations despite the GCC entering the year with exceptionally strong credit fundamentals. While the appetite for sophisticated financial instruments remained high throughout the early months of the year, the current geopolitical climate has introduced a level of volatility that has prompted several issuers to postpone planned deals.
The current slowdown carries substantial weight for broader emerging markets debt activity. Data indicates that GCC borrowers have been the primary drivers of growth this year, accounting for approximately 40% of all emerging-market USD issuance in 2026 when excluding China. This concentration of activity highlights the region’s role as a cornerstone of global liquidity. Historically, these markets have demonstrated an impressive ability to rebound once regional tensions subside, and Fitch suggests a similar recovery is plausible. However, the trajectory of this recovery remains tethered to the duration and the eventual geographic reach of the ongoing conflict.
Even with the prevailing uncertainty, the underlying credit profile of the GCC sukuk market remains remarkably resilient. By the end of 2025, the proportion of Fitch-rated sukuk classified as investment grade rose to 84%, a notable increase from 80% the previous year. Furthermore, over 63% of these instruments are rated within the A category, and nearly 90% of issuers maintain a stable outlook. To date, the market has maintained a perfect record with no recorded defaults, reinforcing the stability of these digital and conventional financial assets. Fitch currently provides ratings for approximately 70% of the outstanding U.S. dollar sukuk in the region, offering a transparent view into the health of these portfolios.
Early 2026 saw a flurry of activity as issuers moved to tap into the markets before the traditional seasonal lull associated with Ramadan. By March 9, the total outstanding debt capital market in the region had surged to roughly $1.2 trillion, representing a 14% year-on-year expansion. U.S. dollar-denominated debt continues to dominate the landscape at 63%, while sukuk have achieved a record 41% share of total volumes. This shift underscores the growing integration of Sharia-compliant instruments within the modern banking infrastructure. Saudi Arabia and the United Arab Emirates remain the dominant forces in terms of outstanding debt, followed by Qatar, Bahrain, Kuwait, and Oman.
On a global scale, sukuk are capturing a larger share of the emerging markets pie, rising to 16% of total USD debt issuance in 2025. Despite the immediate volatility, GCC governments and firms are sticking to their long-term strategies of diversifying funding sources. Many have prepared for these contingencies by planning borrowing programs well in advance of major maturities. While yields on the S&P MENA Sukuk Index rose to 4.78% by March 10, up from 4.46% before the escalation, they continue to trade at lower levels than conventional bonds. This trend reflects the robust and diverse demand from Islamic financial institutions. The correlation between sukuk and bond yields remains nearly perfect at 0.99, showing that while the delivery mechanisms of these financial products may differ, they are deeply interconnected within the global tech-driven financial ecosystem.
Follow the PakBanker Whatsapp Channel for updates across Pakistan’s banking ecosystem