ABU DHABI // The FNC voted yesterday to pass a public debt law that could pave the way for the federal government to issue its own sovereign bonds.
But members stalled the session for hours to remove a provision they said would force the government to guarantee all banks.
The public debt law will now have to gain presidential approval.
The law sets a ceiling for the level of government debt at 25 per cent of GDP, or Dh200 billion, whichever is less.
A maximum of 15 per cent of public debt can be used to fund infrastructure projects.
An earlier version of the law passed last year limited debt to 45 per cent of GDP, or Dh300bn.
The legislation regulates public debt, allowing the government to use it as a tool to fund infrastructure projects and regulate the financial market.
The law creates a public debt management office that would advise the government on financial risk, propose public debt policy, and help manage federal bonds.
Obaid al Tayer, the Minister of State for Financial Affairs, said after the session that it was "possible" for the UAE to issue federal bonds either late in 2011 or in early 2012, but that the federal government had not discussed the issue.
He said the federal bonds would be used to finance the deficit only if it was necessary.
Other options to finance the deficit included the country dipping into its monetary reserves or using returns on investment from entities such as the Emirates Investment Authority.
"We have been working in anticipation for the law, so once the law is ready we will start," he said.
Mr al Tayer said the estimates for revenue and spending that the government disclosed represented a "worst-case" scenario, and that the finance ministry had been conservative in its revenue estimates.
He said the government was "absolutely not concerned" with the level of the deficit - Dh3 billion - which he said was tiny.
FNC members stalled the bill for hours because they claimed a provision in the law meant the UAE would have to guarantee all foreign banks operating in the country.
Mr al Tayer repeatedly tried to explain that the provision would not be a guarantee of all banks, but rather that it would allow the Government to step in if the financial system was facing a serious threat.
The FNC voted to remove the provision.