Deposits in local banks by the UAE government have fallen to their lowest level since mid-2008, despite banks and borrowers in the country continuing to complain of low liquidity and high costs of borrowing.

Figures released by the Central Bank of the UAE show that government deposits fell to AED179.4bn ($48.8bn), from a recent peak of AED213.9bn at the end of the third quarter of 2009. The last time government deposits were below AED200bn was is the second quarter of 2008, when they were at AED139.1bn.

Central bank governor Nasser al-Suwaidi told Bloomberg on 6 April that banks in the country have enough liquidity to support the economy. However, the Emirates interbank offered rate (Eibor) has risen since the beginning of the year, indicting that liquidity remains tight.

The three-month Eibor was 1.95 per cent at the end of 2009, but it has now risen to 2.29 per cent.

Economists say the government money has been withdrawn from the banking system to help finance state spending on infrastructure and investment projects to help stimulate the economy.