From oil to opportunity: The evolution of government funding in the UAE
The market is evolving rapidly, shaped by the introduction of corporate tax, rising sovereign bond and sukuk issuances and IPO activity
Historically, the UAE’s economy has been underpinned by oil revenues, which have served as the primary source of funding for government projects and services.
While this model has enabled rapid growth, it also exposed the country to the inherent volatility of global oil markets.
Fluctuating oil prices – driven by shifts in demand or external economic conditions – often lead to financial instability, highlighting the risks of overreliance on a single resource. Recognising these vulnerabilities, the UAE, like other GCC states, has embarked on a strategic shift to expand its revenue base and funding mechanisms.
Chiefly, this strategy revolves around the diversification of both revenue and funding sources. The former involves a range of options: taxation, monetising state assets and fees, ensuring sustainable income. The latter, on the other hand, involves sovereign debt issuance and innovative capital market instruments to support long-term fiscal planning.
Taxation
has come to the fore as a means of diversifying revenue sources. Even before the introduction of corporate taxation, the UAE had already taken key revenue-raising steps.
Excise tax was introduced in 2017 on select goods, followed by VAT in 2018, which generated $26bn in revenue over four years, strengthening non-oil income.
The implementation of corporate tax in 2023 marked another major step in strengthening fiscal sustainability, aligning with global economic trends and creating a more predictable revenue stream.
This progression from excise tax to VAT to corporate tax illustrates a structured approach to developing a diversified and resilient economy. Despite introducing corporate tax, the UAE remains highly competitive globally, maintaining tax-free incentives in free zones while ensuring fiscal transparency. This tax framework also aligns with global anti-avoidance regulations, enhancing the UAE’s credibility as an international financial hub.
Sovereign debt issuance
Alongside more traditional bilateral or syndicated bank transactions, sovereign debt issuance has become an integral component of the UAE’s funding strategy, ensuring fiscal flexibility and financial stability. Federal and emirate-level issuances, such as those from the UAE government, Abu Dhabi and Sharjah, have strengthened market confidence while expanding investment opportunities.
Sovereign bond and sukuk (Islamic bond) issuances have helped bridge fiscal gaps without placing an excessive strain on oil revenues. In 2024, the GCC bond and sukuk market primary issuances increased by 55.1% to reach $147.9bn, of which the UAE total was $38.5bn from 109 issuances, according to Kuwait Financial Centre (Markaz).
Region-wide, $79.7bn or 53.8% of the $147.9bn total were sovereign issuances, underlining the state’s participation and growing appetite for using the bonds market.
Part of this growth reflects the government’s move to diversify funding sources, leveraging both Islamic and conventional bonds. Additionally, local currency bonds, including the UAE’s dirham-denominated treasury bonds (T-bonds), have deepened domestic capital markets and provided new investment vehicles for institutional investors.
The UAE federal government is also now issuing bonds, starting with foreign currency bonds in 2021, followed by local currency treasury bonds in May 2022 and local currency sukuk in April 2023. This is also happening at an emirate level, with Abu Dhabi, Sharjah and Ras Al-Khaimah all regularly participating in issuances.
For example, in February 2025, Sharjah issued a €500m, seven-year bond as part of its global medium-term note programme, while in March Ras Al-Khaimah issued its first bond in a decade with a $1bn, 10-year sukuk. And last year, Abu Dhabi issued three conventional bonds of various maturities totalling $5bn.
Unlike government-related entities’ borrowing, which funds individual corporate entities, sovereign issuances contribute directly to government-led fiscal planning and infrastructure development.
For example, Dubai’s sizeable public investment programme, including the $35bn Al-Maktoum airport expansion and its $8.2bn rainwater drainage network, will require external financing, which may see the emirate turning to the bond market for the first time since 2020.
IPO
Initial public offerings (IPOs) have also played a central role in the UAE’s capital market expansion, enabling the monetisation of government-owned or government-related entity assets while attracting institutional and retail investors. In addition to helping fund infrastructure developments and other expenditure requirements, they also foster market depth, enhance liquidity and support the transition to a more diversified economy.
The privatisation of state-owned enterprises through IPOs has driven foreign capital inflows, contributing to a stronger financial ecosystem. Notable listings over the past two years include Dubai Electricity & Water Authority’s $6.1bn IPO, the $1bn Salik IPO and Abu Dhabi Ports’ $1.1bn IPO.
These offerings not only deepened market liquidity but also increased investor participation, reinforcing the UAE’s position as a financial hub. The UAE’s stock markets have reached a combined market capitalisation of $1tn, driven by a robust IPO pipeline, strong corporate earnings and rising foreign investment.
Upcoming potential listings, such as that of Etihad Airways, are expected to further enhance the UAE’s role as a global investment destination, demonstrating the long-term vision behind capital market expansion.
PPP
The state is also insulating itself from additional budgetary pressure by incentivising the private financing of public projects.
Here, public-private partnerships (PPPs) are playing a crucial role in enabling large-scale infrastructure projects without directly impacting government balance sheets. Through PPPs, the government provides land, regulatory support and long-term service agreements, while private-sector entities finance, build and operate the projects.
This model has successfully been applied in low-risk sectors like power and water utilities but is now being rolled out in new market segments such as healthcare and transportation. Unlike direct government borrowing, PPPs ensure that fiscal pressures remain low while fostering economic expansion and private-sector participation. The UAE has actively leveraged PPPs to deliver projects without increasing direct government debt, tapping private investors for the financing while the government serves as a facilitator and service offtaker.
The UAE’s funding and revenue diversification strategies demonstrate a calculated approach to ensuring long-term fiscal sustainability. The introduction of corporate taxation, expansion of sovereign bond and sukuk issuances and IPO-led financial market growth highlight a shift towards self-sustaining economic policies.
These measures not only reduce dependence on oil revenues, but also align with national priorities, including expanding global partnerships, driving sustainability and fostering economic growth across key sectors. As the UAE strengthens its financial markets and positions itself as a global financial hub, its approach exemplifies a forward-thinking strategy aimed at ensuring long-term fiscal stability and inclusive development.
