New Era for UAE Finance: Federal Debt Law Unlocks Sovereign Bond Market

Younis Al Khouri, the undersecretary at the Ministry of Finance, speaks during a news conference announcing the release of the statistical report on the Gulf Common Market at the Ministry of Finance in Abu Dhabi on August 2, 2016. Christopher Pike / The National

The UAE Federal Debt Law, which allows the Federal Government to issue sovereign bonds, has been approved and enacted.

The original article referenced the final stages of approval in the Federal National Council (FNC) with a key outstanding clause being the debt ceiling. This process concluded with the introduction of a comprehensive legal framework.

📜 Federal Debt Legal Framework

The key legislation that formalized the federal debt framework is:

• Federal Decree-Law No. (9) of 2018 Regarding Public Debt (amended by Federal Decree-Law No.¹ 26 of 2019 Regarding Public Finance): This law established the legal basis for the UAE Federal Government to issue sovereign debt instruments, such as bonds and Treasury Bills (T-Bills), on a federal level.²
• Federal Debt Management Office (FDMO): The FDMO was formally established within the Ministry of Finance to manage the issuance, servicing, and strategy of the federal public debt in coordination with the Central Bank of the UAE (CBUAE).³

📉 Impact on Fiscal Deficit Financing

The enactment of the Federal Debt Law achieved the objectives mentioned in the original article, particularly providing a new tool for financing the federal budget and addressing fiscal deficits caused by lower oil prices.

• Diversified Funding: The law provided the federal government with a diversified financing strategy, allowing it to raise funds without solely relying on drawing down deposits from the local banking sector or utilizing the assets of Sovereign Wealth Funds (SWFs), as the IMF had previously recommended.⁴
• Liquidity Management: The issuance of federal debt instruments, especially short-term Treasury Bills (T-Bills), aids the CBUAE in enhancing liquidity management within the banking system and developing the local debt market.⁵
• Market Development: The law supports the development of a highly efficient local financial market by introducing new, high-quality, zero-risk instruments for banks and investors.⁶
• Infrastructure Finance: The law allows the federal government to issue debt to finance infrastructure and governmental development projects approved by the Cabinet, contributing to sustained economic growth.⁷

📊 Debt Ceiling and Public Debt Management

The debt ceiling clause that was outstanding at the time of the original article has since been defined:

• Debt Ceiling Limit: The total amount of outstanding Public Debt is now capped at a level determined by a Cabinet resolution, but it cannot exceed 250% of the Government's Own Stable Revenue (as defined by the law).⁸
• Debt Management Strategy: The Minister of Finance is mandated to prepare and annually update a Medium-Term Debt Strategy (MTDS), covering the next three fiscal years, to ensure the debt portfolio aligns with cost and risk preferences while maintaining financial sustainability.⁹

While the IMF had forecast a rise in the UAE's consolidated (federal and emirate-level) debt-to-GDP ratio, the federal government's issuance has been managed prudently. Available data shows that the UAE's consolidated Government Debt to GDP was around 32.10% in 2024, still reflecting a healthy financial position compared to global standards.¹⁰