Today's Edition
A.SREENIVASA REDDY (ABU DHABI)
The UAE government, including the emirate of Abu Dhabi, is expected to issue more than $8 billion in local currency debt this year as part of a strategic push to develop a domestic yield curve, S&P Global Ratings said in its latest brief.
The initiative reflects an effort to deepen the UAE’s local debt capital markets and reduce reliance on external financing.
“Overall, we expect individual emirates and the UAE federal government to issue about $18 billion of total debt in 2025, slightly down from $19 billion in 2024,” the report said, noting that around 55% of the new borrowing will go towards refinancing or rolling over maturing debt.
Among the three emirates rated by S&P — Abu Dhabi, Ras Al Khaimah, and Sharjah — only Sharjah is expected to raise debt to cover a fiscal deficit, estimated at 6.3% of GDP in 2025. Abu Dhabi and Ras Al Khaimah are forecast to maintain fiscal surpluses.
Abu Dhabi’s move to issue more local currency bonds builds on the federal government’s efforts, which began in 2021 with the launch of dirham-denominated treasury bonds and sukuk totalling Dh27 billion ($7.3 billion). Sharjah followed in 2024 with both long- and short-term sukuk in local currency. Nevertheless, most UAE sovereign debt remains denominated in US dollars and held externally.
Establishing a domestic yield curve — a representation of borrowing costs across different maturities — is key to fostering a vibrant local debt market. It serves as a pricing benchmark for banks and corporates, enables more efficient capital allocation, and improves funding access for smaller issuers. As Abu Dhabi and the federal government increase dirham-denominated issuances, these instruments can help anchor market-wide pricing.
According to S&P Global Ratings, Abu Dhabi recorded the highest gross borrowing among UAE emirates in 2024 at $12.4 billion, or 4.1% of GDP. This is expected to fall to $8.2 billion in 2025, or 2.7% of GDP. Sharjah’s projected borrowing for 2025 stands at $6 billion, representing 13.9% of GDP — the highest relative debt burden among rated emirates. Ras Al Khaimah is expected to raise $1 billion this year, after no issuance in 2024, equating to 7.5% of GDP. The UAE federal government is forecast to issue $2.7 billion in 2025, or 0.5% of GDP, while Dubai is not expected to raise any debt this year.
The data point to a pattern: individual emirates — particularly Abu Dhabi, Sharjah, and Ras Al Khaimah — are considerably more active in the debt markets than the federal government. This trend reflects the UAE’s decentralised fiscal architecture, with most capital market activity occurring at the emirate level.
If capital market conditions become less favourable, the UAE's well-capitalised and liquid banking sector could provide alternative funding. “Banks have notably increased deposits over the past three years and continue to display comfortable loan-to-deposit ratios that should support strong lending growth in 2025,” the report said.
Despite lower oil prices, most emirates are expected to maintain prudent fiscal management and robust balance sheets. “Much of the debt issuance is therefore likely to be opportunistic and market dependent,” S&P said.
The report cites several examples. Abu Dhabi may choose to repay part of the approximately $6 billion in debt maturing this year. Dubai continues its deleveraging path, having repaid $1.2 billion in the first quarter of the year. “Dubai could, however, issue more debt from 2026 to fund the expansion of the Al Maktoum International Airport and the renovation of the rainwater drainage network,” the report said. Ras Al Khaimah issued a $1 billion 10-year sukuk in March to refinance maturing obligations. “There are large upcoming tourism-related projects in the emirate, but we anticipate that these will be mostly funded by government-related entities (GREs), with contingent liabilities of the government remaining manageable,” the S&P report concluded.
