Bahrain's Foreign Reserves Fall, Debt Increases amid Delay in Gulf Aid Payments

2020-10-31 - 5:45 am

Bahrain Mirror (Exclusive): In Bahrain, additional data and news indicate that the financial crisis has intensified as the government has asked a US company to review the fiscal balance program, the main plan for fiscal management, supported by three Gulf allies.

New data indicated that foreign reserves remained at dangerous levels. By the end of the first half of this year, the reserves stood at $1.58 billion (597 million dinars), covering only one month's imports.

In March, the reserve fell sharply to 290 million dinars, and the government had to resort to borrowing to maintain the reserve at an acceptable rate.

Reserves rebounded in May, registering 680 million dinars after Bahrain issued 756 million dinars worth of bonds, before falling again just a month later.

This swing points to the financial difficulties caused by the effects of the Coronavirus pandemic and the decline in oil prices.

Current oil prices are around $40 a barrel, while Bahrain needs $96 a barrel to balance its finances.

The IMF said earlier this year that Bahrain's budget deficit is expected to jump to about 15.7% of GDP this year from 10.6% by the end of last year.

Sources revealed to Bahrain Mirror that last April the government asked the supporting countries, Saudi Arabia, UAE and Kuwait, to provide a planned financial payment within the financial balance program, but received no response to its request.

Neither Bahrain nor the supporting countries have announced receiving the payment of BD665 million. Supporting states are also suffering from the effects of the pandemic and low oil prices.

In light of the delay in receiving the Gulf aid, Bahrain was forced to resort to borrowing for the second time this year, as a bank document showed on Tuesday (September 8, 2020) that Bahrain had appointed banks to arrange the issuance of dollar-denominated instruments and bonds from several segments.

Other information also stated that Bahrain had appointed a global group competent in consultancy and asset management to review its plan to rebalance the lost balance of public finances.

Information indicated that the Ministry of Finance and National Economy commissioned the American Lazar company to review the financial balance program for a fee of 425,000 dinars.

In 2018, Bahrain signed an agreement with the three Gulf States to receive $10 billion in structural financial reforms ending 2022 with a balance between revenues and expenditures, but this does not appear to be achieved.

The government was forced to raise the public debt ceiling to 15 billion dinars to cover public spending, in a second increase in just three years, a further indication of the failure of the balance program that aspired to put an end to the steady increase in debt.

According to an investor presentation seen by Reuters, the ratio of public debt to GDP was 114.9% at the end of June.

Does Bahrain's unannounced review of the financial balance program and the failure to receive the planned aid payment indicate that the Gulf States have violated their commitments to the agreement, or is the review merely a natural consequence of the conditions imposed by the oil prices decline and the economic recession caused by the Coronavirus pandemic?

Arabic Version