SUKUK AND PUBLIC DEBT MANAGEMENT: GENERAL ASSESSMENT AND THE WAY FORWARD

Abstract

In recent years, countries have started to develop and issue innovative debt instruments, with the development of financial technologies contributing to this trend. One such innovative debt instrument is sukuk. Sovereign (public) sukuk issuance began in 2001 and has since continued to grow steadily. Sovereign sukuk are issued by countries with a majority Muslim population, as well as by countries with significant Muslim populations, where the majority of the population is non-Muslim. As a result of these developments, sovereign sukuk issuance exceeded $100 billion. At present, countries issue sukuk for the general purposes of debt management, such as attracting a new class of investors (diversifying and expanding the investor base), promoting high levels of financial inclusion, and reducing public borrowing costs. In this context, the study examines the role of sukuk in supporting countries' public debt management objectives and explores ways to enhance its effectiveness. According to the findings of the study, it has been determined that sukuk is effective in achieving the basic goals of debt management, such as meeting the financing needs, developing financial markets, and maintaining market access, diversifying debt instruments and investor base, maintaining a balanced maturity structure and increasing household savings. However, there are several challenges that hinder the effectiveness of sukuk in achieving public debt management goals, including high issuance costs and a lack of standardization in the sukuk market. It is considered that overcoming these challenges will enable sukuk to play a more effective role in public debt management.