GCC PEERS TO OFFER BAHRAIN FISCAL AID
▶ The package will be funded by Saudi Arabia, the UAE and Kuwait
Bahrain, the GCC’s smallest economy, will receive support from Saudi Arabia, the UAE and Kuwait to ensure fiscal stability of its financial institutions as the Arabian Gulf state, strained by high external borrowings, struggles to recover from a three-year slump in oil prices.
A new programme “designed to strengthen Bahrain’s fiscal stability” will be announced by the three states, Finance Minister Sheikh Ahmed bin Mohammed Al Khalifa said in a statement carried by the state-run Bahrain News Agency yesterday. It did not give further details of the financial aid package or when it was expected to be announced.
Meanwhile, a statement on the Saudi Press Agency by the three nations said they were “in discussions with the authorities in the kingdom of Bahrain to enhance the stability of the financial situation”. They will “consider all options to support Bahrain and to finalise an integrated programme ... to support its economic reforms and fiscal stability.”
This is not the first time the sovereigns in the GCC have come together to financially help their peers in the six-member economic bloc and other Arab nations.
In March 2011, the GCC announced a $20 billion (Dh73.46bn) aid package for Bahrain and Oman to support their economies, create jobs and upgrade housing and infrastructure over a 10-year period.
Bahrain, also the GCC’s smallest oil producer, saw finances take a turn for the worse amid the low oil price environment, forcing the government to raise debt to plug its budget deficit and maintain public spending.
The country’s debt to gross domestic product ratio last year rose to 89 per cent and the International Monetary Fund expects it to climb to 100 per cent of GDP in 2019.
Bahrain’s latest grant from the GCC will likely be in the range of “millions of dollars, not billions”, said Jasim Husain, an independent economist in Bahrain.
“The support should bring about calm in the short term at least. Longer term requires economic reforms and sustained commitments from Saudi Arabia, the UAE and Kuwait,” he said. “[Bahrain’s] budget could not spare money for capital spending, hence the significance of the GCC funding.”
The move by the three Gulf states is aimed at allaying market fears on Bahrain’s debt issues. Its credit risk rose the most in emerging markets this month. The cost of insuring the nation’s debt against default for five years jumped 170 basis points on Monday to 609.
The Bahraini dinar, whose peg to the dollar has been effectively unchanged since 1980, fell on Tuesday in the onshore market to the weakest level since at least 1988, according to a Bloomberg report.
The Central Bank of Bahrain’s foreign exchange assets had dropped to a 2001 low of about $1.2bn in 2017.
They have almost doubled since, helped by cash raised through bond sales, but the government has about $2bn of interest payments on bonds through 2019, according to data compiled by Bloomberg.
However, the country’s bonds bounced and currency forwards fell after the pledge of support from its neighbours.
Despite the rising debt levels, Bahrain’s economy is poised to grow 3.2 per cent this year and is forecast to cut its fiscal deficit to 11 per cent of the GDP in 2018, from 14 per cent last year, the IMF said in May.