Sovereign bonds law to boost UAE economy: Experts

DUABI: The new law enabling the federal government to issue sovereign bonds will deliver a major boost to the UAE economy by providing multiple benefits for the country’s investment environment, legal experts say.

STA Law Firm believes the law is an important step in the development of the country’s financial and debt capital market as it permits the government to raise debt and benefit from the UAE’s strong fundamental position.

“The new law will bring substantial returns to the state, not just economically but also with regard to enhancing governance procedures and improving coordination between fiscal and monetary authorities,” said Sunil Thacker, Senior Partner at STA.

“It will strengthen the UAE’s investment environment by reinforcing the state’s competitiveness ranking, boosting investor confidence in the national economy and increasing transparency surrounding the management of public finances.”

Issued last month by UAE President Sheikh Khalifa bin Zayed Al-Nahyan, Federal Decretal Law No. (9) of 2018 is perfectly timed, says Thacker, to take advantage of strong liquidity in the present banking system. “It will create substantial returns for the state since it will anchor the development of the sovereign debt management in accordance with the best international practices,” explained Thacker.

“Another positive impact will be in the upgrading of the state’s macroeconomic management and the fostering of better coordination between the fiscal and monetary authorities, thereby reducing the cost of borrowing and boosting the state’s credit rating.”

In the coming months, depending on market conditions, bankers in the region will be able to sell federal bonds, in the process launching the process to develop a secondary market for trading.

“The liquid characteristic of the secondary market will provide the monetary authority with better tools to address the divergent cycles of business between the UAE and other global economies,” said Thacker. “A sound and well-functioning financial system can help sustain long-term economic growth since it allows for mobilizing savings to the productive sectors within the economic, while also promoting financial stability.

He says the law will support the UAE’s legislative infrastructure by offering flexibility in the issuance of public debt, whether in local currency or foreign currency. These options will benefit a broad base of companies and the economic sectors.