The statement was issued to clarify contradictory reports in local media, after some reports this week said foreigners no longer faced criminal penalties for writing cheques that bounced.

Post-dated cheques are frequently used in the UAE as guarantees by businesses and individuals, for everything from apartment rentals to multi-million dollar deals. Bouncing the cheques is a criminal offence rather than merely a civil one.

The UAE's tough penalties for defaulting on cheques were relaxed for local citizens in October after a royal decree was issued, but the threat of jail remains for the country's large expatriate population.

A debt settlement fund launched by the government is "concerned only with settling all the debts of only Emirati citizens", state news agency WAM quoted the government statement as saying late on Wednesday.

"The relevant mechanisms set by the fund for this purpose apply only to relevant UAE citizens, and not others, and this includes the directives...to decriminalise security cheques presented by UAE citizens to banks and financial firms."

Last July, a British businessman who spent nearly three years in a Dubai jail was released after his conviction for bouncing cheques was overturned. He had gone on a seven-week hunger strike.

Decriminalising bounced cheques would be an important economic reform, reducing risks for entrepreneurs and small businessmen, some economists believe.

The UAE has been planning other steps to ease legal pressure on businesses; new legislation aimed at simplifying the process of bankruptcy and allowing failing companies to restructure is expected in 2013. (Reporting by Raissa Kasolowsky; Editing by Andrew Torchia)

• A Permanent Economic Emergency