President His Highness Sheikh Khalifa bin Zayed Al Nahyan issued Federal Decretal Law No. (9) of 2018 on public debt, to enable the federal government to issue sovereign bonds, and help the banking sector meet international liquidity rules as soon as they are issued.
In addition, the law will enable banks operating in the state to purchase government bonds in dirhams or foreign currencies, which will help them comply with Basel III requirements.
The issuance of sovereign bonds will support the central bank of the UAE role in liquidity management in the banking system. Further, the issuance of government debt securities will help benchmark the UAE Dirham yield curve and thereby deepening the local financial market for financing of companies operating in the state.
H.H. Sheikh Hamdan bin Rashid Al Maktoum, Deputy Ruler of Dubai and UAE Minister of Finance, stressed the importance of the Public Debt Law’s role in developing and regulating the state’s debt market to contribute to the promotion of financial stability in the state. The debt law will also support the establishment of a secondary market for government securities through which public debt instruments can be traded in UAE financial markets to meet the liquidity needs of the banking sector.
H.H. said, "This law will have substantial returns for the state, as it will anchor the development of the sovereign debt management according to best international practices, and will have a significant positive impact in upgrading the state’s macroeconomic management and better coordination between fiscal and monetary authorities, reducing the cost of borrowing and boosting the state's credit rating."
"The law will contribute to enhancing the state’s competitive ranking, boost investors’ confidence in the national economy and raise transparency regarding management of public finances to allow for greater opportunities for the national economy and better integration into the global economy," H.H. added.
The Public Debt Law sets the general rules for the issuance and management of public debt and under the provisions of this law, a ‘Public Debt Management Office’ shall be established at the Ministry of Finance, which will be directly subordinate to the Minister of Finance.
The Office will be responsible for proposing public debt management strategies and policies in coordination with the Central Bank of the UAE, implementing the strategies and policies approved by the Cabinet, and providing recommendations on issuance of public debt instruments. The Public Debt Management Office will also monitor financial risks as well as other risks associated with issuing and trading any public debt instruments, and propose solutions to manage and control these risks.
The Public Debt Management Office will advise the Minister of Finance on investments involving any public debt surplus, identifying risk levels on borrowing or issuing any guarantees for government projects as well as playing an important role in the development of policies and procedures created to manage and reduce risks in the public debt portfolio. The Office will also work closely with the Central Bank of the UAE with regards to the management of the issuance and sale operations of government bonds, treasury bills, and any other public debt instruments.
The Public Debt Management office will set short and long-term objectives for the nation’s public debt management, as well as issue reports on the management and implementation of public debt. It will also coordinate with local governments in each emirate to support and develop a highly efficient primary and secondary financial market by issuing public debt instruments in the state, in which each local government shall establish a public debt office if local public debt instruments are issued.
The terms of reference of these offices shall be similar to those of the Public Debt Office issued in accordance with this law.