The UAE expects to issue a debt law this year that will allow the federal government to sell sovereign bonds in the future, the Ministry of Finance said on Sunday.
The ministry has been working on the federal debt law for years. Currently, individual emirates, mainly Abu Dhabi and Dubai, have tapped the international bond markets.
“We are still in consultation with the Central Bank,” said Younis Al Khouri, the undersecretary at the finance ministry. “We were aiming for last quarter of last year, but unfortunately it [the debt law] was postponed. We are again aiming for this year.”
In April, Abu Dhabi raised US$5 billion from the international debt markets, its first bond sale since 2009.
Overall, GCC governments, as well as related entities and companies, have been ramping up bond sales in international markets.
The UAE accounted for $14.4bn issued in the second quarter, Qatar $9bn and Oman $5bn, according to a report in September from the Bank for International Settlements.
The IMF has called on the UAE to tap bond markets and the assets of its sovereign wealth funds rather than draw down its local bank deposits to balance its budget. The IMF is forecasting that the UAE’s cumulative fiscal deficit will reach $18.4bn between 2016 and 2021 as low oil prices reduce government income.
As a result of expected higher debt issuance, the country’s gross public debt-to-GDP ratio is forecast to rise to 17 per cent in 2017 from 16.6 per cent at the end of 2015, the fund said.
The debt-to-GDP ratio averaged 18.5 per cent between 2005 and 2013.
The UAE Cabinet last year approved a Dh248bn federal budget for the next five years, with a prime focus on education, social development and health, as the country bucks the regional purse-tightening trend. For 2017, expenditure is projected at Dh48.7bn, leaving a negligible deficit.
Mr Al Khouri said that higher revenue will help to fund the federal budget and the aim is to balance it over the next five years, since the deficit will be minor.
“Definitely there will be an increase in the revenue or we will have to review some of the expenditure, as per the UAE constitution we have to have a balanced budget,” said Mr Al Khouri. “Within the five years we will aim to balance the budget.”
The federal budget has three revenue sources: the local emirates’ contributions, returns from federal government investments and federal government fees and charges, he said.
The ministry is still aiming to implement a 5 per cent value added tax on January 1, 2018, in conjunction with other Arabian Gulf states.
“There is no discussion as of yet within the GCC that there will be no collective implementation,” said Mr Al Khouri.
The ministry is also working on levying excise taxes and is in the early stages of studying corporate taxes, he said.
dalsaadi@thenational.ae
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