Bahrain Bailout Tied to "General Assessment" of Rebalancing, Not Specific Numbers: Finance Minister
2019-02-28 - 7:25 p
Bahrain Mirror- Reuters: A $10 billion bailout pledged to Bahrain - one of the Gulf's weakest economies - from Saudi Arabia, Kuwait and the United Arab Emirates is tied to a "general assessment" of its progress in rebalancing its fiscal position rather than to specific numbers, its finance minister said.
Bahrain in October was promised the $10 billion in assistance over five years from the three Gulf allies after experiencing severe pressure in currency and debt markets.
"We put together a fiscal balance plan for Bahrain, by Bahrain, which was then presented to the three countries. The main thing with regards to the support attached to that plan is an assessment of us staying on plan," Sheikh Salman bin Khalifa Al Khalifa told Reuters on the sidelines of an investment conference in Manama.
"It's a general assessment ... We will not tie to a specific number on a five-year cycle, because you will need to make sure that you are aligning growth with fiscal measures."
Bahrain's central bank governor on Tuesday said it expects the economy to grow 2.0 to 2.5 percent in 2019, in line with last year's pace.
Saudi Arabia, connected to Bahrain on its eastern coast by a causeway, has for years provided political and economic support to its Sunni-ruled neighbour.
Sunni Muslim Saudi Arabia and the UAE sent security forces to protect the government in Manama from a Shi'ite-led uprising in 2011.
Bahrain in October released a 33-page plan to fix its debt-burdened finances and eliminate its budget deficit by 2022. The plan aims to put Bahrain on a sustainable financial footing. Oil prices plunged in 2014, leaving it with big fiscal and external deficits.
"One of the things we've seen in Bahrain is, as the economy has grown, non-oil revenues have not kept the pace. And therefore we need to build in measures that capture more with regards to positive economic growth," said the minister.
Bahrain in January introduced a value-added tax.
When asked if the introduction of more types of tax was a way to align economic growth with non-oil revenue generation, Sheikh Salman said "we are not looking at things other than the VAT."
Bahrain has increasingly relied on international debt issues over the past years but had to cancel a conventional bond sale last March as investors demanded higher returns, raising doubts over Bahrain's ability to continue to access debt markets.
Sheikh Salman said Bahrain is working on this year's funding plan and will look at potentially tapping the international debt markets on an "opportunistic" basis.
According to initial estimates, Bahrain managed to narrow its budget deficit in 2018 by 35 percent to 874 million dinars ($2.3 billion), he said.
It had projected a 1.2 billion dinars deficit for the year.
As part of the fiscal balance program announced last year Bahrain has embarked on reforms aimed at reducing public expenditure.
The steps include the creation of new bodies to oversee government spending and borrowing, cutting public spending, introducing voluntary retirement for state employees, and mounting an efficiency drive.
Around 18 percent of the civil service has so far accepted a voluntary retirement programme, which the minister said was "very positive."
The Bahraini dinar touched 17-year lows in the first half of last year, and the cost of insuring Bahrain's sovereign debt against default hit record highs.
In June, its Gulf allies reassured financial markets by saying they were in talks about a major aid package that would be linked to the kingdom's progress in reforming its finances.
The $10 billion package is "a series of long term loans," said the minister, who declined to comment on whether the financing was interest-free and on how much of the $10 billion had already been drawn down.
He said more details on the loan would be announced "in due course".