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Approval of UAE public debt law imminent

Approval of UAE public debt law imminent

Law would limit UAE government debt to 25 per cent of GDP $55bn, with the Central Bank expected to handle local issues.

May 11, 2011 10:16 by

The UAE should soon approve a law allowing the oil producer to issue its first ever federal sovereign bonds and create a local debt market, a finance ministry official has been cited on Reuters.

The long-awaited law, regulating issuance and the amount of debt the world’s No.3 crude exporter may accumulate, awaits a presidential nod after the UAE’s top advisory council passed the bill in December.

“The public debt law is now in final stages for approval and as for the ministry of finance it has already started taking measures after the cabinet’s resolution to establish a public debt bureau,” Nadia Sultan told a conference in the UAE capital.

“It is hopefully very soon,” Sultan, an officer in charge of establishing the federal public debt management office, later told Reuters.

The legislation would limit UAE government debt to 25 percent of gross domestic product, or 200 billion dirhams ($55 billion). The International Monetary Fund projects that UAE government debt, including that of some of its seven emirates, to fall to 16.4 percent of GDP this year from 21.0 percent in 2010.

The federal debt management office is expected to coordinate future issuance with the individual emirates, which until now have been issuers of sovereign bonds in the Gulf Arab country.

Sultan also said an issuance plan has been under consideration but neither she nor other finance ministry officials attending the event gave more details, saying the process was still at an early stage.

The UAE minister of state for financial affairs said on Saturday that the OPEC member — rated Aa2 by Moody’s — had no plans to issue a sovereign bond this year but it could do so at the beginning of 2012 if needed.

The second-largest Arab economy, home to some 5 million people, had originally set its 2011 federal budget with a gap of around 3 billion dirhams and expenditure of 41 billion.

Worried by unrest in the Middle East this year, the UAE has said it will spend $1.6 billion to improve infrastructure in less-developed northern emirates and has raised military pensions by 70 percent and introduced bread and rice subsidies.


Sources have said that plans to hike fuel prices have also been delayed. A finance ministry official said on Saturday the ministry would assess demands for extra spending at the end of the month.

The UAE, which has avoided the turmoil challenging autocratic regimes in nearby Bahrain and Oman, did not say how it was planning to finance these new measures.

Saif Hadef al-Shamsi, senior executive director at the central bank’s treasury department, told the same event that the ministry should coordinate debt issuance with the central bank as local bonds would drain liquidity from the market.

“Any issuance over one year will be handled by the finance ministry,” he said. “A problem lies in the legislative field … as the central bank cannot sell short-term bills to people outside of commercial banks.”

Fiscal policy is a key tool for UAE policymakers to steer the oil-reliant economy, as the central bank’s flexibility is limited by the country’s currency peg to the dollar. ($1=3.67 dirhams) (Reporting by Martin Dokoupil and Mahmoud Habboush; Editing by Susan Fenton)

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