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No need for bonds to fund fiscal deficit: Hamdan

By Staff Finance minister says public debt law is ready for approval

The UAE does not need to issue sovereign bonds to finance a small deficit in its 2012 budget as it will use its own financial resources to bridge the shortfall, according to the Minister of Finance.

Sheikh Hamdan bin Rashid Al Maktoum, Dubai's deputy ruler, said the Ministry of Finance has completed studies on the proposed public debt law and it would be presented to the federal cabinet for further study and endorsement.

In a statement published on the Ministry's website, Sheikh Hamdan said the public debt draft law is on par with international standards, including those recommended by the World Bank and the International Monetary Fund.

"There is no need for the UAE to issue bonds this year to finance the fiscal deficit as it will be covered by the country's own financial resources," he said.

The UAE's 2012 federal budget, which was approved in late 2011, involved spending of Dh45.278 billion while revenue was put at Dh44.807 billion, leaving a deficit of Dh471 million, a fraction of the country's GDP.

The shortfall is far below the 2011 deficit of around Dhthree billion, which was financed by additional allocations from Abu Dhabi, the main oil producer.

Unlike some other Gulf oil producers, the UAE has never issued bonds to fund fiscal shortfalls, resorting instead to introducing fees on government services, developing other non-oil revenue and using return from its massive overseas assets, which were also used to support the consolidated financial account (CFA), covering the federal budget and spending by each emirate.

A surge in oil prices to a record high average of $110 in 2011 allowed the UAE to bask in one of its highest fiscal surpluses of around Dh71.5 billion after recording a CFA deficit of nearly Dh29.5 billion in 2010.

"The Ministry of Finance has completed all the work regarding the preparation of draft federal public debt law, which will define the mechanism to be implemented by the public debt bureau, including the issuance of government bonds in coordination with the competent authorities such as the Central Bank and the Stocks and Commodities Authority," Sheikh Hamdan said.

"The federal government will soon start again debating the draw law, which will then be presented to the higher authorities for ratification."

In 2010, the Federal National Council passed the draft public debt law, paving the way for the issuance of the first sovereign bond by the second largest Arab economy. The legislation, which needs presidential approval to become law, limits government debt to 25 per cent of the GDP.

An earlier version of the legislation discussed in 2010 had said public debt should not exceed 45 per cent of GDP, or Dh300 billion.

© Emirates 24|7 2012

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