- 85% of Gulf bonds in foreign currencies
- Local currency bonds equal 15% of GDP
- Saudi Arabia biggest local issuer
Policymakers should prioritise developing local currency debt markets, industry experts told AGBI, after the US-Israeli war on Iran and investor worries about the conflict’s long-term regional economic impact halted Gulf international bond issuances.
Gulf corporate and sovereign bonds prices tumbled in the weeks following the start of the war on February 28 before rebounding somewhat as a fragile ceasefire came into effect from April 8.
Abu Dhabi, Qatar and Kuwait have issued $7 billion in bonds in private placements since the conflict began, but public issuances have been on pause.
“People are underappreciating that access to debt funding has been completely shut down for almost two months,” said Mohieddine Kronfol, chief investment officer for global sukuk and Mena fixed income at Franklin Templeton in Dubai.
“The Gulf’s reliance on dollar external funding should be something that policymakers try to address… They should also focus on developing domestic debt markets by issuing more local currency bonds and sukuk, getting them to be more active in terms of trading and promoting local currency issuances to international investors.”
Foreign currency-denominated bonds accounted for 85 percent of all outstanding Gulf bonds in 2024, excluding short-term treasuries, the International Monetary Fund (IMF) estimates.
Local currency debt markets “have come a long way” during the past decade, said Azad Zangana, head of GCC macroeconomics at Oxford Economics in Dubai, yet “liquidity remains low, so many domestic institutional investors still find that they need to invest abroad.
“Also, local currency bonds don’t provide much diversification because they’re linked to oil, gas, banking or real estate for which there’s plenty of exposure in other asset classes. If we had some more technology, healthcare companies, materials or consumer-focused companies issuing local currency debt it would be much more interesting for investors.”
Saudi Arabian issuance was the main reason Gulf local currency bond markets tripled in size from 2017 to 2024, the IMF wrote in a 2025 report. Even with this expansion, Gulf local currency bond issuance equates to only 15 percent of GDP, far below emerging market norms.
Saudi government riyal-denominated debt securities totalled SAR889 billion ($237 billion) as of September 30 last year, up from SAR679 billion a year earlier, the Bank for International Settlements estimates.
UAE federal government local currency bonds and sukuk totalled AED26.9 billion ($7.3 billion) at the end of 2025, up from AED23.4 billion a year earlier, finance ministry data shows.
Local currency bonds trade over the counter and lack a daily tradable float, said Zangana.
“There’s clearly substantial demand for good investable assets in the region, otherwise the property market wouldn’t have done so amazingly well – there were few other assets in which to invest,” said Zangana.
“It’s a question of ensuring local currency debt markets are accessible, people are educated about how these things work and how they’re priced, and that they offer a good return.”
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Bahrain aside, Gulf countries have relatively low debt levels due to the vast hydrocarbon revenues that state-owned energy companies generate.
“Deeper domestic financial markets would also enhance resilience to external shocks,” the IMF report states. Its in-house research “found more stable bond yields and market liquidity during periods of stress in emerging markets and developing countries with a higher share of local currency debt and more diverse investor bases”.
The IMF welcomed Kuwait’s revised public debt law and Saudi Arabia’s introduction of over-the-counter settlement, both enacted last year, as supportive to domestic bond markets which have “increased significantly in recent years”.
Yet local debt markets remained relatively modest and varied significantly by country, the IMF wrote, highlighting how the dominance of buy-and-hold investors depresses trading activity in such bonds and sukuk.
“There is major scope to develop the local bond market,” the IMF added.