Bahrain’s Gulf allies reaffirm willingness to offer help

Finance ministers from Saudi Arabia, the UAE and Kuwait reviewed the fiscal balance programme for Bahrain and are ready to support the financing needs of the Arabian Gulf’s smallest economy.

“In light of their previous announcement to consider all options to support Bahrain and to finalise an integrated programme to enhance Bahrain’s fiscal stability and economic growth, the ministers reaffirmed their countries’ commitment to support the financing needs of a fiscal balance programme with targeted indicators,” an official joint statement from Saudi Arabia’s Ministry of Information said.

The finance ministers met their Bahraini counterpart in the Manama on Wednesday to discuss a technical report, which includes a detailed fiscal balance programme, prepared by the four countries’ joint working team in coordination with the Arab Monetary Fund, the statement released on Thursday said.

Bahrain’s Finance Minister Sheikh Ahmed bin Mohammed Al Khalifa in June said that the Gulf neighbours would offer a new aid package to strengthen the country’s economy. The Gulf allies, he said at the time, are “set to announce a new programme” without specifying the timeline or details.

Officials from the four Gulf states are discussing a “multiyear programme that would involve spending cuts and measures to increase non-oil revenue, including the introduction of [VAT]”, according a Bloomberg earlier this month .

The Arab Monetary Fund, an organisation modelled on Washington’s International Monetary Fund, may also help to monitor the programme’s implementation.

Bahrain’s economy is the smallest among the six-members ececonomic bloc of GCC, a region that accounts for about a third of the world’s proven oil reserves.

However, Bahrain, unlike Saudi Arabia, the UAE and Kuwait, lacks the foreign exchange buffers and has struggled to maintain economic

growth momentum after the three-year oil price slump.

Crude prices have strengthened significantly from lows of January 2016, however, there are still question marks on Bahrain’s ability to control its ballooning debt and investors fear it may have to abandon its currency peg. Bahrain’s central bank in June, however, said that it is committed to keeping the dinar’s peg to the US dollar.

The central bank’s foreign exchange assets plummeted to a 2001 low of about US$1.2 billion last year. 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.