Bahrain sees $2.16bn budget deficit in 2011-12

Small oil producer plans to cover the deficit by raising more debt
Bahrain sees $2.16bn budget deficit in 2011-12
Aerial view of the skyline of Manama. (Getty Images)
By Reuters
Tue 26 Oct 2010 02:47 PM

Bahrain expects to run a budget deficit of 813 million dinars ($2.16 billion) in 2011 and 2012 which the small oil producer plans to cover by raising more debt, the state news agency reported.

The country's cabinet had referred a draft law to parliament that sees state revenues at 4.4 billion dinars and expenditure at 5.3 billion dinars during those two years, Bahrain News Agency (BNA) said late on Monday.

"Therefore, the deficit is expected to reach 813 million (dinars) and will be covered by borrowing from the local market, financial institutions and Arab and Islamic financing funds," BNA said.

Bahrain last launched a $1.25 billion 10-year sovereign bond in March, followed by a $750 million five-year paper by its sovereign wealth fund Mumtalakat in June. The Gulf Arab kingdom's central bank governor said last month Bahrain would not issue sovereign bonds any time soon.

The spending forecast for 2011 and 2012 is up 26 percent from an estimated 4.13 billion dinars for the previous two years and BNA said the funds would go to infrastructure, health, education and housing projects.

The non-OPEC country's budget break-even oil price is estimated at $70 to $80 per barrel, one of the highest in the Gulf.

Bahrain typically bases its revenue forecast on a conservative oil price forecast. Over the past few years, the state's income was above its initial forecasts.

Economists expect the island kingdom to run a fiscal deficit of 0.4 percent of gross domestic product this year and a 0.2 percent gap in 2011, according to a recent Reuters poll.

In August, Moody's downgraded Bahrain's local and foreign currency government debt ratings by one notch to A3, citing a deterioration in the Gulf state's fiscal flexibility to meet potential banking sector liabilities. (Reuters)

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