New legislation could pave the way for a debut federal sovereign bond issue
The UAE government is still working on a public debt law that would pave the way for a debut federal sovereign bond, a senior official at the country's finance ministry said on Monday.
A federal debt offering from the UAE, the world's No. 3 oil exporter, has been mooted for the past few years but only bond issues from individual members of the seven-state federation have come to the market so far.
"We are still working with the Prime Minister's office and the Council of Ministers," Younis al-Khouri, undersecretary and director general at the federal finance ministry, told Reuters.
"We have not dealt with such an important law lately. It required a lot of thoroughness and a lot of reviews to have a solid law," he said.
The country's top advisory council passed a new public debt bill, aimed at establishing the local debt market, in December 2010 but the legislation has been going through a review process since then. It needs presidential approval to become law.
"We are waiting (to see) if there are any specifics we would need to tackle. Each emirate has to do its own homework," Khouri said. "It has to be approved by the rulers of all seven emirates."
The ministry already has a general debt issuance strategy with a timeline but details have not been finalised, he added, declining to say when the draft law might get the final nod.
In February, Khouri said the UAE expected its first ever federal sovereign bond issue to be around $1bn after the public debt law was approved.
The new legislation would limit UAE government debt to 25 percent of the Gulf country's gross domestic product, or AED200bn ($55bn) according to the 2010 draft.
Finance ministry officials have been saying in recent months that the UAE has no immediate need to issue bonds to cover a budget deficit this year as it can plug an expected AED2bn shortfall from its own reserves.
Last month, the UAE government approved a balanced federal budget with spending of AED44.6bn for 2013, higher than AED41.8bn originally planned for 2012.
The federal budget accounts for only around 11 percent of overall fiscal spending in the UAE as most expenditure is conducted by the oil-rich emirate of Abu Dhabi.
The UAE central bank, which held a seminar on developing the local debt market last week, said in a Sunday statement citing Governor Sultan Nasser al-Suweidi that it was important to have an active bond market to counter financial crises and alleviate pressures on banks' liquidity.
Asked about the ongoing absence of the public debt law, Suweidi told reporters on Monday: "Some emirates have issued laws and that's enough for us for the time being."
"Treasury bills, treasury bonds, sukuk - emirates can issue these. We can establish the yield curve based on that," he said on the sidelines of the World Economic Forum in Dubai.
Speaking at the seminar last week, Suweidi said the application of Basel II and Basel III rules will require a high liquidity ratio at banks, which will inevitably lead to lenders avoiding large corporate loans in the coming years and switching to bonds with high and medium quality.
"But in the absence of an active local bond and sukuk market, banks will be forced to buy bonds in the international markets and this situation, if developed, will put us in a high risk at crises," the statement cited Suweidi as saying.