The United Arab Emirates has taken a step towards its first sovereign bond after the Federal National Council passed a new public debt law today.
The legislation, which needs presidential approval to become law, limits government debt to 25 per cent of the country's gross domestic product, or Dh 200 billion ($54.45 bn).
An earlier version of the legislation discussed last year had said public debt should not exceed 45 per cent of GDP, or Dh300 billion.
The bill provides a legal framework for creating a government bond market in the UAE with public debt instruments traded in one or more of the country's three financial markets.
"The bottom-line is that the country needed the law not just to plan for a sovereign bond issue but also to revive the local currency debt market," said Abdul Kadir Hussain, chief executive of Mashreq Capital.
"As such, it is a positive start and hopefully it will help develop a local bond market in the region."
The UAE has said it will consider a federal bond after the passage of the debt law and the creation of a debt management office.
Under the new law, the Gulf state will create a public debt bureau to advise the government on debt issuance and work with the central bank on issuing and selling government bonds and other financial instruments.
The law also stipulates that debt issued for infrastructure projects should not exceed 15 per cent of public debt.