Media ININ Economy We Trust
13-03-2019 Media in\ Abu Dhabi
The UAE Central Bank has confirmed that after the issuance of the Public Debt Law, it is in a position to conduct open market operations, ie, the sale of government bonds to banks to absorb or pump liquidity, which will deepen the domestic capital market.
He said liquidity management using domestically issued debt instruments would provide the ECB with an additional tool to enhance its liquidity management capability more proactively, noting that when successful open market operations, for example by the Hong Kong and Singapore monetary authorities, Sufficient liquidity in line with the objectives of monetary authority, and stabilize the stability of the banking system.
In order to be effective, the UAE Central Bank has confirmed in its latest reports that it needs to improve its local liquidity forecasting capabilities to assess shortfalls or increase on a daily basis and act accordingly to conduct regular open market operations to align local liquidity with monetary policy objectives Financial stability.
Federal Law No. 9 of 2018 on public debt, issued by the Ministry of Finance, allows for the issuance of public debt instruments to the federal government. It states that this issuance should aim at, among other things, the development of primary and secondary capital markets, financing infrastructure and development projects, and support for monetary policy management. In accordance with the first law, public debt instruments are issued in active securities markets In the UAE, the public debt will be issued in UAE Dirhams, which directly supports the development of the Dubai Financial Market and the Abu Dhabi Securities Market. The debts of local governments and former government companies have been denominated in foreign currency abroad.
However, the law sets some guarantees for the federal government’s issuance of debt instruments, with a ceiling of 250% of its “stable income”. The law also allows the federal government to guarantee the debts issued by its subsidiaries, which was previously in the jurisdiction of local governments, although this guarantee requires a decision from the Council of Ministers.
The law calls for coordination between the Department of Public Debt Department of the Ministry of Finance and local governments wishing to issue public debt instruments to strengthen primary and secondary markets in the emirate.
With regard to the Central Bank, the Law provided that the Public Debt Management Office of the Ministry of Finance would coordinate with the UAE Central Bank on matters related to the management of the issuance process as well as the sale of government bonds and treasury bills.
It is noteworthy that the central bank is currently absorbing liquidity in dirhams through the issuance of certificates of deposit, including certificates of deposit compliant with Islamic law, and inject liquidity through repo agreements / repurchase agreements / early redemption of certificates of deposit and certificates of deposit compliant with Islamic law, Facilitating USD / AED swaps, temporary marginal lending facilities, and its Shariah-compliant counterpart, and facilitating guaranteed murabaha.
