The UAE issues a new law to promote its issuance of Public Debt

The Public Debt Law outlines the general rules governing the issuance and management of public debt by UAE government-owned entities. It sets out the foundations for public debt issuance in general in the UAE, outlining the objectives and the organisational framework of the governmental bodies involved in the regulation of public debt issuance.

The Public Debt Law allows the UAE Federal Government to issue Federal-level public debt instruments for the first time. Under this new law, public debt instruments include “Islamic financial instruments, treasury bonds, promissory notes, treasury bills, debt rescheduling bills, government bonds, general or commercial loans, credit facilities, or payment guarantees” (Article 1, Public Debt Law).

The objectives of the Public Debt Law include supporting and developing a highly efficient financial market in the UAE, financing infrastructure projects and governmental development projects as approved by the UAE Cabinet, as well as supporting the contribution of public debt instruments to the development and diversification of primary and secondary financial markets in the UAE (Article 2, Public Debt Law).

The Public Debt Law sets out a cap for the total amount of outstanding public debt which shall not exceed the amount determined by the UAE Cabinet, at a maximum of 250% of the “Government Own-Stable Revenues”, defined as fiscal revenues resulting from the provision of UAE Federal Government services and the carrying on of its various activities. There is also a cap for the share of public debt that can be allocated for infrastructure projects or their financing (which must not exceed 15% of the total outstanding public debt at any time).

Whilst some of the various emirates  that make up the UAE have already set up their own emirate-level debt management offices (DMOs) such as Dubai, Abu Dhabi and Sharjah, and whilst DMOs have recently gained popularity across the GCC-region (with the Kingdom of Saudi Arabia and most recently, Kuwait, establishing their own functions), the Public Debt Law also provides for the establishment of a new Federal-level Public DMO for the UAE within the Ministry of Finance. Under Article 3 of the Public Debt Law, the new Federal-level Public DMO is tasked with:

• proposing and implementing strategies and policies of public debt management in coordination with the UAE Central Bank (following approval by the UAE Cabinet)
• monitoring financial risks and any other risks related to the issuance and trading of any public debt instrument, and
• coordinating with the individual emirates to support and develop highly efficient primary and secondary financial markets through the issuance of public debt instruments in the UAE.

In addition, each of the seven emirates that make up the UAE must set up its own public debt management office to the extent that they wish to issue local public debt (if they do not already have one) (Article 16, Public Debt Law).

In accordance with Article 15 of the Public Debt Law, public debt instruments are to be issued in electronic form (book-entry) and are to be registered in an Electronic Registry (although they may still be issued in the form of paper certificates). Public debt instruments offered for public subscription must be listed on at least one financial market regulated by the UAE Securities & Commodities Authority and Market (the SCA), ie the Dubai Financial Market (DFM) or the Abu Dhabi Securities Exchange (ADX). The Public Debt Law states that public debt will be traded in accordance with trading, clearing and settlement provisions that will be issued for the implementation of the Public Debt Law within six months of the Public Debt Law being issued (to be issued in ordination with the SCA and the UAE Central Bank).

The Public Debt Law is intended to support the establishment of a primary and secondary market for UAE Government Securities, enabling emirates other than Abu Dhabi to benefit from the higher credit rating that a UAE Federal bond or Sukuk would offer, and will assist UAE Banks to comply with their Basel III liquidity requirements (following the issuance of the UAE Central Bank’s Regulations regarding Capital Adequacy - Circular No. 52/2017).

For any queries relating to the Public Debt Law, please contact Lee Irvine or Samir Safar-Aly.