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Bahrain, which has a high-risk debt rating from all three major credit rating agencies, received a $ 10 billion aid package in 2018 over five years from Saudi Arabia, Kuwait and the United Arab Emirates, to help it avoid a credit crisis in an agreement related to financial financial reform.
But the small country allied with the United States, which is a small oil producer, may need more than the amount allocated for the year 2020 to meet the needs for greater financing in light of oil prices between $ 20 and $ 30 per barrel.
Last March, Bahrain announced a $ 11 billion stimulus package, which includes plans to spend $ 570 million on private sector wages to reduce the impact of the Corona virus on the economy.
“We estimate Bahrain needs additional funding in 2020 from the $ 10 billion support package it received in 2018,” Goldman Sachs emerging markets analyst Sarah Groot told Reuters.
The finance ministry declined to comment on the date, which it expects to receive this year’s tranche of $ 10 billion in aid over five years, which will reach $ 1.76 billion, according to official plans announced last year. .
According to the International Monetary Fund, Bahrain’s budget deficit is expected to jump to 15.7% of GDP this year from 10.6% in 2019. Initial estimates for Bahrain in February predicted that the deficit for 2019 would rise to 4.7% of GDP.
A banker specializing in debt in the Gulf region said Bahrain’s financial gap would be “negligible”, especially with extra help, but the support of its neighbors “may not be very close this time.”
Bahrain lacks the abundant oil and financial resources of its neighbors, and its public finances are among the weakest in the region. But its Gulf allies provide political and economic support to maintain its stability over the years, given its importance in countering Iranian influence in the region.
Bahrain, which is home to the Fifth Fleet of the United States Navy, shares the concern of some Shiite citizens of the two Sunni families and accuses Iran of fanning it, a charge Tehran denies.
“(Bahrain’s) small size and strategic importance support continued support” from the Gulf allies, but Manama will need to use the rest of the package faster, said Fitch Els, director of Fitch.
According to the Ministry of Finance, measures to reduce public spending, including a 30% reduction in ministries’ administrative budgets and the deferral of large infrastructure projects, will ensure that government spending remains within the budget limit for 2020 The ministry said in a statement emailed to Reuters that Bahrain intends to Issue international bonds twice this year.
Bank sources told Reuters that Manama obtained a loan of approximately one billion dollars to pay the bonds worth 1.25 billion dollars, which mature at the end of March, after the suspension of plans to issue international bonds. in light of market conditions.
But two bank sources said they had to rely on local banks to complete the deal. One of them said: “The international banks that usually lend to Bahrain were neutral this time.”
With foreign reserves at the central bank reaching $ 3.4 billion at the end of February, some question Bahrain’s ability to protect its currency pegs to the US dollar.
“I saw some recommendations for a devaluation of the Saudi rial, but I think the two most visible currencies in the region will be the Omani rial and the Bahraini dinar,” said Tim Ash, chief sovereign debt analyst for emerging markets at BlueBay Asset Management Corporation. , in an email sent last month.
The yield on Bahrain dollar bonds maturing in 2047 has increased sharply by about 180 basis points since the beginning of March. Goldman Sachs said in a research note that Manama’s foreign exchange reserves are probably not enough to accommodate the decline in its ongoing transactions if oil remains around $ 30 a barrel this year.
“Bahrain has already undertaken reforms, so what is the area that has remained in place?” Said a Dubai-based fund manager. Referring to subsidy reductions and the introduction of VAT as part of a program to achieve the parity budget by 2022.
In the end, he added, it’s about oil prices, “if you stay at $ 20, I think you can forget about everything about (Gulf) support.”
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