UAE enables the federal government to issue Sovereign Bonds (Public Debt Instruments)

UAE enables the federal government to issue Sovereign Bonds (Public Debt Instruments)

UAE The President His Highness Shaikh Khalifa Bin Zayed Al Nahyan issued Federal Decretal Law No. (9) of 2018 regarding Public Debt which will enable the federal government to issue sovereign bonds and help the banking sector meet international liquidity rules as soon as they are issued. The UAE banks can now purchase government bonds in dirhams or foreign currencies, which will help them comply with Basel III requirements. The issuance of sovereign bonds/ government securities will support the UAE banking system and help benchmark the UAE dirham yield curve.

The Public Debt law (the law):

The law will enable the federal government of UAE to issue government securities or public debt instruments which can be traded in the UAE financial market. The purpose is to aid the federal government to get additional borrowing to use it for the benefit of the state.  The government will set up a secondary market public debt instruments can be traded.

A ‘Public Debt Management Office’ will be set up by the Ministry of Finance for governance and management of the instruments. The responsibilities of the office are:

1. Strategizing and managing public debt and policies in coordination with the Central Bank of the UAE and providing recommendations for issuance of public debt instruments;
2. Monitor financial risks associated with issuing and trading any public debt instruments; and
3. Propose solutions to manage and control these risks;
4. Advice Ministry of Finance regarding risk levels on borrowing or issuing any guarantees for government projects;
5. Set objectives for managing the nation's public debt, as well as issue reports on the management and implementation of public debt. 
6. Coordinate with local governments in each emirate to support and develop a highly efficient primary and secondary financial market by issuing public debt instruments.

Secured settlement of Public Debt:

Article 10 of the law further makes it mandatory for the government to consider the public debt instruments as an absolute and unconditional obligation to settle it from its resources making it a safe investment for the public.   Further, the holder of the instrument will have a privilege right to get his debt settled before any other debt of the Government. The Central Bank can if permitted by the Ministry of Finance, withdraw from the Government’s accounts held at the Central Bank for the settlement of any of the Public Debt Instruments.