Gulf News

Bond-mar­ket bar­gain clouds Bahrain’s out­look for re­form

Coun­try’s dol­lar debt has been hurt by crude’s slump in the past two months


Bahrain be­came a dar­ling this year af­ter its Gulf neigh­bours helped to ward off any de­fault. But falling oil prices have put the is­land king­dom’s fi­nances un­der scru­tiny again.

Af­ter out­per­form­ing Gulf peers in the third quar­ter, Bahrain’s dol­lar debt has been hurt by crude oil’s slump in the past two months. In­vestors are con­cerned about the govern­ment’s abil­ity to put an aus­ter­ity plan into ac­tion, with oil prices be­low what it needs to bal­ance the bud­get. Bahrain’s cost-cut­ting tar­gets, aimed at elim­i­nat­ing the bud­get deficit by 2022, are am­bi­tious, Fitch said in Oc­to­ber.

“Gulf Co­op­er­a­tion Coun­cil loans will help pull Bahrain back from the brink, but with­out mean­ing­ful fis­cal re­form, they just kick the can down the road,” said Brett Row­ley, the Los An­ge­les-based man­ag­ing di­rec­tor for emerg­ing mar­kets at TCW Group Inc, which holds about $198 bil­lion. In ad­di­tion, “a sharp drop in oil prices could jeop­ar­dise re­cently pledged as­sis­tance,” he said.

TCW held Bahrain bonds as of end-Septem­ber, ac­cord­ing to data com­piled by Bloomberg.

The na­tion’s bonds re­main the best per­form­ers among Gulf peers this year, re­turn­ing 3.8 per cent, ac­cord­ing to Bloomberg Bar­clays in­dexes. Their in­clu­sion in JPMor­gan Chase & Co. emerg­ing-mar­ket bond in­dexes start­ing end-Jan­uary is cush­ion­ing the blow, ac­cord­ing to Arqaam Cap­i­tal, a Dubai-based in­vest­ment bank.

Bahrain is the big­gest ben­e­fi­ciary of in­dex in­clu­sion among Gulf peers, said Ab­dul Kadir Hus­sain, the head of fixed in­come at Arqaam. Based on the in­dex weight­ings, flows into Bahrain will be as much as 45 per cent of its out­stand­ing bonds.

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