Ministry of Finance..a year of successes and achievements
In the first year of H.H. Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum, Deputy Ruler of Dubai and Deputy Prime Minister and Minister of Finance, the Ministry of Finance recorded many successes and achievements under global circumstances and challenges, which the UAE turned into opportunities and achievements.
The Ministry of Finance had a prominent role in these successes, as it is the key to prosperity and its sustainability, as it has strengthened government spending on investment in people and the implementation of vital projects as an important pillar in supporting the national economy, and through a distinguished financial management that stimulates creativity that contributes to enhancing financial and economic stability and the well-being of citizens.
To maximize the federal financial resources and efficiently develop them, the ministry has implemented effective policies that have produced unparalleled success in bond and treasury projects for international and local investors to diversify sources of income to ensure the preservation of the high standards of the UAE financial system.
The Ministry of Finance has also established its active and strong presence in the international scene, as it participated in the meetings of the financial track within the Group of Twenty, and presented innovative ideas and solutions during its participation in those meetings. It also played an important role in agreements to avoid double taxation on income and encourage investment, and succeeded in expanding the network of agreements. With most trading partners by adopting a successful negotiation strategy.
During the past year, the ministry implemented a series of projects and financial policies that were reflected in the strong economic growth of the national economy despite the adverse international conditions.
The first of these projects was in October 2021 with the adoption of the federal budget for the next five years 2022-2026 by the Council of Ministers, with a total of 290 billion dirhams, to be the largest budget in the history of the UAE.
The Ministry was keen to present a long draft budget extending for five years to confirm the continuation of the goals set towards achieving national development and providing a decent life for the people of the Emirates through short and medium-term plans that follow each other.
58.9 billion dirhams were allocated for the first fiscal year 2022 from the five-year budget.
The adoption of this largest and largest budget in the history of the state confirms that a decent life for the people of the Emirates will remain a major priority, and that building a more balanced national economy is a basic approach to achieving the comprehensive development of the union, and that the wise leadership has laid firm foundations for government action that works to achieve the strategic goals of the state, and supports its path towards Sustainable economic and social development, which is a major pillar for the next fifty years.
This budget also emphasized the great importance of investing in human competencies, by continuing to develop the sectors of education, health and social development, creating a flexible business environment, and consolidating the infrastructure that the state enjoys, to advance the foundations of the digital and knowledge economy.
The adoption of the budget is clear evidence that the state is proceeding with the support and directives of its wise leadership on the path of comprehensive and sustainable development with strong and solid foundations, and is determined to prepare for the next fifty years with integrated components in various fields. On the map of the global economy and raise its competitiveness globally, as a vital center and a leading destination for trade, investment, finance, business and tourism.
When the Cabinet approved the budget, His Highness Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum affirmed that the approval is evidence that the UAE government continues to work to achieve the happiness of its people and provide security and a decent life for the people of the country, noting that a decent life for the people of the UAE will remain a major priority, and that building the national economy A more balanced approach is a fundamental approach to the overall development of the Union.
When analyzing the 2022 budget, we find that the Ministry of Finance has succeeded in directing expenditure items in a manner that is commensurate with the nature of the objectives set and meets the aspirations of the state. Therefore, it was keen to allocate the largest share to the development and social benefits sector, at a rate of 41.2%, with the aim of developing the education sector and maintaining the quality of health care services. Enhancing the quality of life for various members of society, in line with the highest international standards, such as providing the best security services, achieving justice for all members of society, and consolidating the country's position as one of the safest countries in the world.
The budget also focused on directing financial resources to achieve development goals in the UAE, by investing in human competencies, continuing to develop the education, health and social development sectors, creating a flexible business environment, and consolidating the state's leading infrastructure, to advance the foundations of the digital and knowledge economy.
The Cabinet approved a policy of loans and financing for housing programs for citizens of the state within mechanisms that participate with the private sector, through financing new loans by banks operating in the state, provided that the federal government bears the benefits arising from those loans.
Accordingly, the Ministry of Finance, in coordination with the Ministry of Energy and Infrastructure, has identified financing options with the financing banks, the guarantees required to be provided by the federal government, and the cost involved and the implementation mechanism according to the best possible terms.
The adoption of this policy came with the aim of enabling the Ministry of Finance to issue the largest possible number of approvals to meet the citizens’ housing needs, settle all the accumulated requests during the next five years, and draw a future vision for dealing with requests for housing assistance and the search for sustainable financing sources that would meet the financing of the increased demand for housing.
The new policy will lead to many results, most notably the issuance of 40,000 housing assistance decisions at a total cost of 32 billion dirhams. The federal government will bear the financing of the interest cost in the amount of 7.752 billion dirhams.
The housing requests that will be met during the current budget cycle until the end of 2026 will enable the state to complete 13,000 housing units for citizens.
The second project, which was implemented by the Ministry with high professionalism and efficiency, was in the global markets, and this is attested by the bond projects for international investors as well as the treasury bond projects. The creditworthiness of the country and the desire of global investors to take advantage of the multiple and safe opportunities offered by the distinguished investment climate in the UAE.
These international bonds contributed to enhancing the competitiveness of the UAE in all fields, and supported financial and economic policies aimed at achieving comprehensive and sustainable development by diversifying sources of income, attracting foreign investments, and building a multi-opportunity investment environment, which confirms the commitment of the Ministry of Finance to work on developing the financial system in The state and the provision of innovative financial tools that will advance the growth of the national economy.
On October 6, 2021, the federal government priced the federal government's first-ever US dollar-denominated multi-tranche sovereign bond package with a total value of $4 billion, consisting of a 10-year tranche of $1 billion and a 20-year tranche of $1 billion and a $2 billion 40-year Formosa bond tranche.
As an indication of the impressive success of this project, the subscription requests for these bonds exceeded the target level by 5.6 times, and with a total of 22.$5 billion over the target issuance size ($4 billion), as this is the first record sovereign issuance in US dollars for a period of 20 years by a country within the Gulf Cooperation Council, and the transaction price recorded a price equivalent to the lowest level of interest rate differentials on sovereign bonds in the region Great demand from local banks, especially bonds with shorter maturity, thanks to the level of liquidity of high-quality assets, as announced by the UAE Central Bank, and strong interest from international accounts, including money market accounts and central banks, and high credit rating Federal government and state inclusion in the JPMorgan Emerging Markets Bond Index, as well as aggressive bids from Taiwanese investors for the 40-year Formosa bond tranche.
On June 23, 2022, the federal government priced another package of US dollar-denominated dual-tranche bonds (3 billion dollars), this time the bond package included a 10-year medium-term tranche of 1.75 billion dollars, and a 30-year Formosa bond tranche. a year at $1.25 billion.
As the previous bond project succeeded, this project followed in the same footsteps, as subscription requests exceeded nearly $15 billion within one day, an increase of nearly 5 times the size of the issuance, and the issuance achieved a high success regardless of the severe fluctuations in global financial markets.
This is the first issuance from a high-quality sovereign country in the Middle East and North Africa region in 2022, and it is the second sovereign issuance in the world for a long-term tranche in 2022, as well as the second lowest price differential achieved by any country in the world on the US dollar for a term 30 years since the beginning of 2022, and it is the first worldwide issuance of Formosa bonds in 2022, which is the lowest price difference achieved by any country in the world on the US dollar for 10 years since the beginning of 2022, and it is also one of the lowest new issuance fees achieved Which country this year on both tranches.
The success was also reflected in the geographical distribution of investors, where the percentage of investors from outside the Middle East and North Africa reached more than 70%, which reflects the high and strong creditworthiness of the country, and the desire of global investors to take advantage of the multiple and safe investment opportunities offered by the distinguished investment climate in the country. .
The Ministry of Finance continued its global successes. On May 9, 2022, a treasury bond program was launched in cooperation with the Central Bank of the Emirates as the issuing and payment agent, to issue government treasury bonds denominated in local currency, within the program to issue treasury bonds worth 9 billion dirhams for the year 2022 divided into 6 auctions. Until the end of the year, by 1.5 billion dirhams in each auction.
The bonds offered included tranches of varying durations between two and three years, and initially five years, followed by the issuance of a ten-year tranche.
This issuance contributed to building the yield curve denominated in dirhams, diversifying sources of financing, activating the local financial and banking sector, as well as providing safe investment alternatives for local and foreign investors in the local currency. Future financing in local currency, thus strengthening the local financial market, and improving the investment environment in general.
An important step.
Issuing bonds denominated in the local currency in dirhams is an important step, as it plays a major role in developing the liquidity of the dirham in the local economy.
Also, the bonds priced in dirhams will find new and more attractive investors, such as those who want to buy dollar bonds. This diversity in the issuance price of bonds attracts new investors towards government bonds, which are a new investment tool for banks in operating their liquidity.
So that it brings great benefits and benefits to the local economy and companies in the borrowing operations.
This issuance was a great success after the first auction received a very high demand and great demand from investors who prefer this type of investment tools, thanks to the level of stability enjoyed by the UAE, and the stability of the price and strength of the dirham, which provides higher returns on daily loans between banks, to The low level of risk due to the country's stable performance, as well as being a new alternative for investors, and the fact that the UAE is a politically and economically stable environment and a fertile ground for investors.
Once the bonds were issued, bids worth 9.4 billion dirhams were received, the volume was oversubscribed by 6.3 times, and the success was reflected in the premium prices paid in the market, which were achieved with a difference of 28 basis points on US Treasury bonds for two years, and a difference of 29 basis points on US Treasury bonds for 3 years years.
The second auction of the Treasury Bond Program witnessed strong demand from the six primary distributors banks, as bids worth 9.7 billion dirhams were received, and the volume was oversubscribed by 6.5 times. Two years, 25 basis points difference on 3-year US Treasury bonds, the third auction of the Treasury Bond Program saw strong demand, with bids worth 7.6 billion dirhams delivered, oversubscribing 5.1 times, and the success reflected in the premium prices paid in the market that were achieved by a difference 16 basis points on 2-year US Treasuries, and a 15 basis point spread on 3-year US Treasuries.
On the twelfth of September 2022, the first 5-year treasury bonds were launched, and bids worth 8.60 billion dirhams were received in total on the two tranches (two-year and five-year terms), and the volume of subscription exceeded 5.7 times, and the success is reflected in the distinguished prices paid in the market, which were achieved A difference of 8 basis points on 2-year US Treasuries, and a difference of 20 basis points on 5-year US Treasuries.
- The Group of Twenty.
The Ministry of Finance succeeded in strengthening the country's position among the major and vital economies.
In November 2021, Indonesia invited the UAE to participate in the G-20 summit in Bali for 2022, and the Ministry of Finance received an invitation from Indonesia to participate in the meetings of the financial track within the G-20, and this is the third invitation for the UAE to participate in the G-20, as it previously participated in France 2011 and Saudi Arabia in 2020.
The work of the Group of Twenty revolves around the financial track, which focuses on financial and monetary issues, as the Ministry of Finance chairs the financial track of the Group of Twenty with the Central Bank, and the meetings of the financial track began on December 9, 2021 and will end on November 13, 2022.
During the period from December 9, 2021 to September 16, 2202, the Ministry of Finance participated in 36 meetings held under the framework of the financial track of the Group of Twenty, and the ministry has reviewed and analyzed more than 600 documents of the financial track and contributed to its preparation so far.
The Ministry also coordinated and communicated with 20 partners and stakeholders to discuss the UAE's participation in the financial track.
Nine of the G20 reports so far have dealt with the name of the UAE, given its many achievements during its participation in the group's meetings.
The Ministry of Finance also presented 30 case studies for the Group of Twenty, including: 23 current studies on non-credit financial solutions and services such as digital payments, insurance and risk management tools for micro, small and medium enterprises, where the report stated that the largest number of case studies was submitted by the UAE, and 6 studies A case from the UAE Expanding the use of technology in infrastructure, and one case study on the country’s pioneering efforts and the progress made by financial regulators to build an integrated regulatory and legislative environment for sustainable finance in the country, which is in line with the country’s climate-neutral strategy 2050.
Financial intermediation fund.
The Ministry of Finance led the efforts of the UAE, in coordination with the relevant authorities in the country, to establish the “Financial Intermediation Fund for Epidemic Prevention, Preparedness and Response” of the Group of Twenty, which was established with the aim of providing additional long-term resources to help developing countries better prepare for future epidemics, as it pledged The UAE provided $20 million to support the fund.
Contributions announced by donors amounted to over $1.4 billion.
The Ministry of Finance has participated in 10 meetings to formulate the fund's governance framework and operational details so far.
The ministry has always confirmed that it is continuing its efforts to follow up and seize opportunities to enable the UAE to participate effectively in the G20, whether at the level of work teams or at the level of the financial track, and to highlight the advanced capabilities of the UAE in areas related to the financial track and keep pace with the G20 agenda.
- Double taxation agreements on income, protection and encouragement of investment.
The Ministry of Finance played an important role in agreements to avoid double taxation on income and to protect and encourage investment.
The international double taxation practiced by some countries through imposing taxes of the same type, on the same person and on the same goods in more than one country, had its harmful effects on the exchange of goods and services and international mutual investments.
The agreements to avoid double taxation on income provide many advantages, including: enhancing development goals and diversifying the sources of national income for the UAE, avoiding double taxation, additional taxes, indirect taxes and tax evasion, meeting the challenges of cross-border trade and investment flows, providing full protection for individuals from double taxation Directly or indirectly, avoiding obstructing the free flow of trade, promoting investment and attracting the largest number of investments to the UAE, taking into account tax challenges and keeping pace with global changes in the economic and financial sectors, new financial instruments and transfer pricing mechanisms, stimulating the exchange of goods and services and the movement of capital.
The double taxation avoidance agreements also contribute to enhancing the development goals of countries, in addition to diversifying sources of national income and increasing the volume of incoming investments, taking into account tax issues and the significant changes taking place in the global economic, financial and tax environment, as well as new financial instruments and transfer pricing mechanisms, and encouraging the exchange of goods and services. and movement of capital.
In this context, Cabinet Resolution No. 196/3 of 1989 was issued authorizing the Ministry of Finance to negotiate and sign comprehensive bilateral agreements to avoid double taxation.
These measures taken by the state aim to strengthen its trade and investment relations with trading partners by setting up mechanisms that explain to investors their financial status for their operations in commercial, economic and financial activities and any other activities in countries with which the state has active economic relations.
Within the framework of global strategic partnerships and to enhance the competitiveness of the UAE, the Ministry of Finance worked to expand its network of agreements, as it succeeded in negotiating and concluding agreements to avoid double taxation on income and agreements to protect and encourage investments to extend the network of agreements to most of the country's trading partners.
The number of agreements concluded by the state has reached 247, including: 138 final signed agreements to avoid double taxation of income, 5 of which were signed over the past year.
As for the agreements that were signed to protect and encourage investment, they amounted to 109 agreements, 8 of which were signed during the reign of His Highness Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum.
The signed agreements included approximately 73% of the world's countries.
The concluded agreements have achieved financial savings for the public and private sectors and individuals, in particular what they achieve for sovereign funds, government institutions and the air transport sector, which enjoyed exemptions from income tax, capital gains, dividends and bonds.
Investment protection and promotion agreements are considered a legal platform for mutual investments with other countries, as these agreements provide many advantages, including: protection of investments from all non-commercial challenges such as nationalization, confiscation, judicial seizure and freezing, permitting the creation of investments and granting them a license, emphasizing the transfer of profits and other revenues in a currency Free and transferable, Encouraging investors and providing the necessary care for them with regard to the expansion, management and maintenance of investments, Compensating the investor fairly, promptly and quickly in the event of being seized according to the market value of the investment before it was seized, and the challenges of conflict mechanisms between the investor and the state by encouraging friendly solutions and recourse to the courts Domestic and International Arbitration.
Digital Procurement Policy.
The Ministry of Finance has prepared a digital procurement policy for the federal government, and among its most important achievements are;
Improving and accelerating the performance of procurement and contracting processes for entities, simplifying the procedures associated with suppliers, and adding national value-added requirements, which contributes significantly to supporting the local economy of the country, and motivating small and medium-sized companies by granting them privileges to encourage them to participate in government tenders. Small and medium-sized companies represent about 98% of the total number of companies in the country, and they constitute 52% of the country's non-oil GDP, and therefore the SME sector is very important for the diversification of economic growth in the country.
The government digital procurement policy enhances the efficiency of negotiations with suppliers to ensure that they obtain the best prices through electronic auctions, achieve quality procurement at low prices, expedite procedures while ensuring the availability of the allocated budget, as well as enhance the efficiency of planning and procurement management at the federal level.
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