ISLAMABAD: The issuance of Sukuk by Pakistan, together with the $1 billion disbursement from the International Monetary Fund’s Extended Fund Facility (EFF), will help shore up the economy’s reserves amid a sharp widening of the current account deficit, says Moody’s Investors Services (Moody’s).

Moody’s in its latest report stated that Pakistan (B3 stable) returned to the Sukuk market with a seven-year issuance in January 2022, its first Sukuk since 2017. This issuance, together with the recently approved $1 billion disbursements from the IMF’s Extended Fund Facility, will help shore up the economy’s international reserves amid a sharp widening of the current account deficit.

The report stated that global long-term sovereign Sukuk issuance is set to drop to $73 billion in 2022 and $75 billion in 2023, from $88 billion in 2021, including issuance by multilateral development banks.

“We expect issuance to fall as government deficits continue to narrow because of higher oil prices, lower coronavirus-related expenditure and accelerating economic activity in core Sukuk-issuing countries,” said Alexander Perjessy, VP-Senior Analyst at Moody’s. “Issuance volumes already dropped 22 percent in 2021, with the largest decline from the Gulf Cooperation Council (GCC) sovereigns, mainly Saudi Arabia.”

Moody’s estimates that the aggregate fiscal deficit of major Sukuk-issuing sovereigns - Saudi Arabia, Malaysia, Indonesia and Turkey - will decline to $92 billion in 2022 from $118 billion in 2021 and $194 billion in 2020. The aggregate fiscal positions of the GCC sovereigns, excluding Kuwait, will improve to a surplus of $50 billion in 2022 from a surplus of $13 billion in 2021 and a deficit of $112 billion in 2020. These projections are based on the 2022 average oil price assumption of $75/barrel. New entrants into the sovereign Sukuk market present a small upside risk to our issuance projections. The potential passage of Kuwait’s new public debt law and Egypt’s recent approval of the Sovereign Sukuk Law will support these countries’ sovereign Sukuk issuances in the medium term, it added.

This article was originally published on Business Recorder on February 23, 2022.