Dirham bonds key to UAE’s monetary, fiscal policy goals

Dirham bonds key to UAE’s monetary, fiscal policy goals

The UAE’s recently launched dirham denominated government bonds (treasury bonds) is a major progress in the debt capital market development in the country and will be a key tool in achieving both monetary and fiscal policy goals. Clearly, dirham bonds give government a new domestic funding source to tap into, if needed. From a fiscal standpoint, this would help it diversify sources of funding and reduce reliance on bank financing, external borrowing or drawdowns from reserves in times of fiscal squeeze. Domestic government debt issuance could help develop an active domestic corporate bond market and interbank repo market. While availability of local currency denominated government bonds would provide a useful pricing benchmark for other debt issuers in the market, corporate debt issuances would give firms an opportunity to diversify their finances away from usual sources such as bank funding and external borrowings. As the market develops, smaller companies could follow larger ones in issuing debt. Finally, developing the domestic debt market could attract more foreign investments that could further stimulate domestic economy. The local currency bond market has a critical role in achieving the monetary policy goals through active liquidity management. Over the years, the Central Bank of UAE (CBUAE)