New law to limit UAE public debt

Dubai: The UAE on Wednesday took the first step to reduce public debt and limit state-owned enterprises' exposure to the debt market by enacting the Public Debt Law at the Federal National Council (FNC).

According to the public debt draft law passed by the FNC, the total value of the country's public debt should not be more than 45 per cent of GDP or Dh300 billion whatever less of both at the time of issuing the public debt bonds, according to a WAM report.

The legislation stipulates that total local public debt should be not more than 15 per cent of GDP.

The move comes at a time when governments across the region are taking a stock of their exposure to the market, while many government entities are trying to raise capital to fund expansion.

A recent report by Bank of America and Merrill Lynch estimates that the UAE's total debt obligations are $142 billion, of which $24 billion is due for repayment this year.

Total assets of Dubai amount to Dh1.3 trillion, far outweighing its debt of $70 billion, although higher than its GDP of around $55 billion, putting the emirate in a comfortable financial position. The government has already raised $10 billion through a bond.

"No government entity is allowed to issue bonds without Cabinet approval. The application should state the amount of the issue of loan bonds or sukuk, the purpose of the issue, financial resources or investment earmarked for repaying the incurring debt," the draft law stipulates.

The law says the bonds shall be issued in e-forms whose ownership shall be registered in an e-registry.

A public debt office shall be established at the ministry of finance which shall be under the minister's authority. The competent authority in each emirate shall also set up a public debt office.

"The move will help increase confidence in the economy. It will limit over-exposure of the state-owned entities and help manage finances better," Raju Menon, managing partner of investment adviser Morison Menon, told Gulf News.