UAE to issue Sovereign Bond: Another sign of recession and weak economy

The Federal National Council has passed a new public debt law, marking a key step toward the issuance of UAE’s first sovereign bond.

The legislation, which needs presidential approval to become law, limits government debt to 25 per cent of the country’s gross domestic product, or Dh200 billion ($54.45 billion).

An earlier version of the legislation discussed last year had said public debt should not exceed 45 per cent of GDP, or Dh300 billion.

The bill provides a legal framework for creating a government bond market in the UAE with public debt instruments traded on one or more of the country’s three financial markets.

The UAE has said it will consider a federal bond after the passage of the debt law and the creation of a debt management office.

Under the new law, the UAE will create a public debt bureau to advise the government on debt issuance and work with the central bank on issuing and selling government bonds and other financial instruments.

The law also stipulates that debt issued for infrastructure projects should not exceed 15 per cent of public debt.

For the laymen, a Sovereign Bond is a debt security issued by a national government within a given country and denominated in a foreign currency. The foreign currency used will most likely be a hard currency, and may represent significantly more risk to the bondholder.