The UAE’s parliament, the Federal National Council (FNC), has approved a draft law that would allow the federal government to borrow up to 25 per cent of the total gross domestic product (GDP) of the country.

The legislation opens up the possibility of a federal bond issue. So far, emirates have borrowed individually and not at the federal level.

The debt law still requires approval by the cabinet. If approved, debt levels would be capped at 25 per cent of GDP or AED200bn ($54.5bn), depending on which is lowest.

The FNC has also approved a AED41bn federal budget for 2011. That means spending will be down on the AED43.6bn budgeted in 2010. Revenues for 2011 are projected at AED38.05bn, meaning the federal budget will be in deficit.