FILE PHOTO: Bahrain Financial Harbour (L) and Bahrain World Trade Center are are seen in diplomatic area in Manama, Bahrain, February 28, 2018. Picture taken February 28, 2018. REUTERS/Hamad I Mohammed/File Photo
© Reuters

Bahrain has received a $10bn financial aid package from its Gulf allies as the kingdom seeks to deal with a worsening fiscal crisis.

Saudi Arabia, the United Arab Emirates and Kuwait agreed the aid to help finance a raft of domestic reforms and cost-cutting measures that are aimed at balancing the budget by 2022.

The move highlighted the desire of Bahrain’s Gulf allies to stabilise its finances given the state’s history of unrest.

The tiny kingdom, which has been hit hard by lower oil prices since 2014, has been raising debt and struggling to limit spending. Its budget deficit widened to $3bn this year, pushing the country towards a fiscal cliff edge as bond repayments loom.

“Today’s announcement demonstrates our commitment to putting the government’s finances on a solid and sustainable footing,” said Sheikh Khaled bin Abdulla Al Khalifa, chairman of Bahrain’s ministerial committee for financial affairs, in a statement late on Thursday.

The Gulf aid package, allied with plans for fiscal rebalancing, would allow “for a swift and achievable consolidation programme that balances fiscal sustainability with continued economic growth”, said Sheikh Khalifa.

Bahrain’s Shia majority has been engaged in low-level protests against their Sunni rulers since the anti-government protests wthat swept the region in 2011. Bahrain has banned members of dissolved opposition parties from standing in upcoming parliamentary elections on November 24.

Bahrain was bailed out by its neighbours in 2011 with a $10bn aid package after quelling a Shia-led pro-democracy uprising sparked by the Arab spring.

That previous spending package, including funding for infrastructure construction, has helped revive economic growth in Bahrain, which hit 3.8 per cent in 2017 and is forecast to be 3.2 per cent this year, according to the IMF.

But debt has nonetheless been heading towards 100 per cent of gross domestic product, weakening the currency and increasing the cost of debt insurance. Any default could have threatened contagion for regional debt markets and currencies.

The IMF has been calling for the urgent provision of a “credibly large policy package” of fiscal reforms to raise revenue and cut costs while protecting the most vulnerable.

Bahrain’s newly announced “fiscal balance programme” includes cutting public spending, a scheme to encourage early retirement for government employees, introducing changes to balance the budget of the utilities companies an redirecting state cash subsidies towards “eligible citizens”.

New units will be set up to monitor spending, including an internal audit and central procurement unit within the finance ministry, as well as a debt management office.

The government said the new measures would build on previous consolidation efforts that had yielded savings of BD854m between 2015 and 2017.

While Bahrain has been raising fuel and electricity prices, the pace of reforms has lagged behind some of its neighbours as the government is wary of increasing resentment within the population.

The three Gulf states also deposited $1bn at Jordan’s central bank on Thursday, part of a $2.5bn aid package to that kingdom aimed at shoring up government finances as it faces unrest over austerity measures.

Get alerts on Bahrain when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article