Bahrain Roundup 2020: New Record, Public Debt Amounts to 130% of GDP
2021-01-22 - 5:42 am
Bahrain Mirror (Roundup 2020): The Economist predicted that Bahrain's public debt will reach a new record by the end of this year, approaching the ceiling of 15 billion dinars, which constitutes about 131% of its GDP, an increase of about 2 billion dinars over last year.
According to these figures, the government exceeded the public debt ceiling set by 2017 law at 13 billion dinars, amid absence of financial control from the legislative authority. The government later passed a law (August 25, 2020) to raise the public debt ceiling to 15 billion dinars.
The economic problems in Bahrain worsened with the outbreak of Coronavirus and the sharp decline in oil prices that lost 25% of their value due to the war of prices waged by Saudi Arabia on Russia in March, which led to a 29% decline in governmental revenues in the first half of the year, as the oil revenues recorded a 35% decline, while the non-oil revenues dropped 13%, according to official figures.
On the other hand, foreign exchange reserves fell to 290 million dinars ($768.82 million) in April, the lowest level of foreign exchange reserves since 1990, according to numbers released by the Central Bank of Bahrain, but increased again in May ($1.8 billion) after Bahrain sold $2 billion in bonds.
The sharp drop of nearly $2.7 billion (or 78%) between February and April reflected the extraordinary rise in risks in connection to Bahrain's external weaknesses.
Bahrain was able to borrow $1 billion in March, but the borrowing was to pay $1.25 billion in bonds. Bahrain then issued $2 billion in bonds in May and was able to sell them as two four-and-a-half-year term sukuk and a 10-year traditional one, and in September it was able to sell $2 billion bonds for the second time, one as seven-year term sukuk and the other as twelve.
This year, the government resorted to the Unemployment Fund again (the government last year resorted to the fund to finance retirees' benefits and withdrew 230 million dinars from it), but this time to pay the salaries of citizens working in the private sector for three months (April, May and June) in order to cope with the effects of the Coronavirus outbreak that disrupted economic life. According to an official statement, the government withdrew 215 million dinars from the fund.
The government has also withdrew $450 million from the Future Generations Reserve Fund (once) to finance an "emergency expenditure" worth 177 million dinars ($479 million) to cope with the Coronavirus pandemic.
Bahrain's budget deficit is expected to jump to 15.7% of GDP, according to IMF estimates, compared with 10.6% in 2019.
However, a report by the Central Bank of Bahrain predicted that government debt would account for 110% of GDP by the end of this year, with a decline to about 105% in 2021.
The report suggested that government spending in Bahrain will reach 2.13 billion dinars by the end of this year, and 2.2 billion dinars in 2022, according to a report by the Ministry of Finance.
It is noteworthy that total government debt accounted for 90.60% of GDP in 2017, and the average government debt as a proportion of GDP was 28.06% from 1990 to 2017, and reached its highest levels of 90.60% in 2017 and the lowest level of 5.90% in 1994.
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