| 11 Jan 2009 |
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Dubai considers revival of MTN to bridge deficit
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Sunday, Jan 11, 2009
Gulf News
Dubai: The Dubai Government has plans to reactivate its dirham denominated medium-term note (MTN) programme to bridge Dh4.2 billion budget deficit.
The government has increased its public sector expenditure by 42 per cent, resulting in a small budget deficit of about 1.3 per cent of Dubai's gross domestic product in 2007.
The increased spending, especially in the infrastructure sector, is targeted as a fiscal stimulus to keep up the economic activity and employment.
"Despite the economic slowdown affecting countries around the world, Dubai has decided to keep up its public sector spending. The increased budget outlay suggests that Dubai is committed to its past growth momentum," said Nasser Bin Hassan Al Shaikh, Director General of Dubai Department of FinanceDubai Department of Finance
.
Affirming that the government has adequate resources to cover the deficit, Al Shaikh said that if market conditions improve, the government would revive its sovereign debt programme.
As part of its Dh15 billion dirham-denominated debt progamme, the government had raised Dh6.5 billion through the first tranche in last April. Later the programme was suspended as the cost of financing increased in the international market due to the global credit crunch and banking sector liquidity shortage.
The inaugural dual tranche dirham-denominated issue consisted of a fixed-rate note issue of Dh2.5 billion and a floating rate note issue of Dh4 billion. The fixed-rate five-year note carries a coupon of 4.25 per cent, payable semi-annually, and was issued at par.
The floating rate five-year note carries a coupon of three-month Emirates Interbank Offered Rate (EIBOR) plus 50 basis points, payable quarterly and was issued at a price of 99.857 per cent.
Al Shaikh said inflations is no longer the first priority of the government and the monetary authority in the country.
"Inflation is expected to decline by default because of the overall slowdown in the economic activity and the liquidity in the system.
"Central banks and governments around the world are pumping money into the financial system to increase liquidity to keep their economies running smoothly. Now the focus is more on how to survive the global slowdown rather than controlling inflation," he said.
As part of sovereign fund raising plans, Dubai government is also planning to get credit rating. "We are working on a plan to get ratings done by international credit rating agencies some time towards the end of this year," Al Shaikh said.
© Gulf News 2009. All rights reserved.
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