ABU Dhabi to Issue $8 Billion Local Currency Debt

Abu Dhabi is readying to issue local currency debt as part of an ongoing effort to develop the UAE’s domestic debt capital markets, according to global ratings agency S&P Global Ratings, which expects that Abu Dhabi and the UAE federal government to issue more than $8 billion of local currency debt this year to support the building of a domestic yield curve.

Overall, S&P Global Ratings expect individual Emirates and the UAE federal government to issue about $18 billion of local currency debt in 2025, slightly down from $19 billion in 2024.

“About 55% of that debt will be used for refinancing or to roll over of maturing debt. Of the three Emirates we rate – Abu Dhabi, Ras Al Khaimah, and Sharjah – we expect that only Sharjah will issue debt to meet a fiscal shortfall (we estimate its deficit will be 6.3% of GDP in 2025), while the others will maintain their surplus position,” S&P Global said in its research note.

The UAE’s domestic debt capital market remains relatively nascent, particularly with regards to local currency issuance, but it is growing.

Since the UAE federal government began raising debt in 2021, it has issued about $7.3 billion of treasury bonds and sukuk in local currency, equating to about 42% of total issuances.

Sharjah also issued $270 million of long-term local currency sukuk in July 2024 and reissued its $1.91 billion short-term sukuk certificate in May 2024. However, most of the emirates and federal government debt remains denominated in the US dollars and is held externally.

Why Local Debt Matters

Capital markets are volatile in an uncertain global environment, and reliance on international capital markets could expose some issuers to higher borrowing costs and Sharjah is particularly exposed in this regard.

“Its fiscal deficits will likely remain large, net government debt is about 50% of GDP, and its interest burden is around 30% of government revenues, one of the highest among our rated sovereigns. However, that Sharjah’s recent sukuk issuances were well received by the market,” the research note said.

The UAE’s well-capitalised and liquid banks could provide funding should capital markets prove unsupportive. 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.

In a worst-case scenario of impaired access to capital markets and bank stress, S&P Global Ratings expect the UAE federal government, backed by Abu Dhabi, would provide extraordinary support to the Emirates.

Despite lower oil prices, most of the Emirates will maintain prudent fiscal policies and strong balance sheets. Much of the debt issuance is therefore likely to be opportunistic and market dependent.

For example, S&P Global Ratings expect that Abu Dhabi could choose to repay some of its about $6 billion of debt maturing this year. Dubai also continues to deleverage–the government repaid $1.2 billion during the first three months 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.

Ras Al Khaimah also issued a $1 billion 10-year sukuk in March to refinance the same amount maturing that month. There are large upcoming tourism-related projects in the Emirate, but it is anticipated that these will be mostly funded by government-related entities (GREs), with contingent liabilities of the government remaining manageable, the research note said.