Mubasher: The global sukuk market will recover after a steep drop in volumes in 2015, encouraged by rising sovereign issuance, product innovation and retail banks’ growing demand, Moody’s said in a report on Tuesday.

Moody’s expects a total sukuk issuance will hit $95 billion by the end of 2017, compared to $85 billion in 2016.

"We expect sovereign sukuk issuance volumes will continue to grow in 2018 as governments look to diversify their financing mix and satisfy the liquidity needs of Islamic retail banks," said Christian de Guzman, a Moody's Vice President and- Senior Credit Officer.

GCC countries led sukuk markets’ growth in 2017, Moody's said, forecasting that the Gulf countries will raise $148 billion in 2018. Saudi Arabia accounted for the lion's share of sukuk issuance in 2017 after raising a total of $17 billion, or 40% of global long-term sovereign sukuk issued in the first eight months of the year.

On the back of large fiscal deficit in other GCC states, Oman and Bahrain will contribute to expanding sukuk market, Moody's said.

The international ratings agency added that resurgent demand of domestic banks and product innovation boosted the higher sovereign sukuk issuance, as well as helping the issuers address fundamental challenges.