2017: Bahrain on Brink of Currency Devaluation, Public Debt Ceiling to Reach 13 Bn Dinars

2018-01-08 - 12:39 am

Bahrain Mirror (Exclusive): Bahrain raised the ceiling of public debt to an unprecedented level when it approved a law to raise the borrowing limit to 13 billion dinars, which constitutes more than 80% of state revenues.

Following 7 months since the onset of 2017, the Government referred the State Budget Bill for 2017 and 2018 to parliament. The bill passed by the parliament (July 11, 2017) included a deficit of over 2.5 billion dinars.

The price of oil needed by the government to balance spending and income is more than $100 per barrel, the highest among GCC states, according to the International Monetary Fund estimations, said Bloomberg.

The legislative authority approved a bill linked to the budget that allows raising the debt ceiling to 13 billion dinars after it was only 10 billion, and approved another law allowing the government to withdraw about 200 million dinars from the generations fund.

"The interests of public debt may reach up to BD1.3 billion, which amounts to 22 percent of total revenues for both years," said Darwish Al-Mannai, a member of the Shura Council's finance and economic affairs committee.

According to investors and traders in the debt swap market, Bloomberg highlighted that seven countries in the world are at risk of being rated at "debt default", including Bahrain, Lebanon, Egypt, Turkey, Ukraine, Ecuador and Pakistan.

Bank of America (Merrill Lynch) said in a report that the Bahraini economy has deteriorated over the past period more than expected, for monetary reserves have decreased, in addition to the increase in government debt.

The report attributed the reason for the instability of the Bahraini economy to the lack of a credible plan to improve the financial situation during the coming period, which contributed to resorting to international bonds.

The Central Bank of Bahrain (CBB) monetary reserves dropped to 522 million dinars in August, covering only 1.4 months of goods and services, before climbing to 1.3 billion dinars in September, apparently due to the returns of the issuance of international bonds.

Senior opposition figure Ebrahim Sharif (October 11, 2017) warned that Bahrain could face a financial crisis such as that faced by Greece in 2010, calling for measures to counter rising government debt.

Bloomberg reported on November 1, 2017 that Bahrain had asked its Gulf allies for financial support to avoid a currency devaluation, noting that Bahrain was trying to refill its foreign reserves to avoid devaluation, which could have an impact on the rest of countries in the region.

"Most people expect other Gulf states to give aid to Bahrain," said economy expert at Capital Economics Jason Tuvey, adding that if Bahrain is forced to devalue its currency, it will start to question the linkage of other currencies.

Bloomberg said that without a package to help recover, the authorities are struggling to keep the Bahraini currency's peg to US dollar.

Moody's lowered Bahrain's credit rating from Ba2 to B1 and kept the outlook negative. Moody's stated that the main driver of the downgrade was the belief that the Bahraini government's credit standing would continue to become significantly weaker in the coming years.

"We will consider restoring the outlook for Bahrain to stable if there is a clear and reasonable response to the fiscal and economic policies," it further said.

Arabic Version


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